I've been thinking all day about the Goldman Sachs note on immigration in the US and what it means for monetary policy this year. It explains why jobs growth has been so resilient when the underlying economy has slowed.
You can't sum it up any better than GS did.
We estimate immigration in 2023 was 1.5m above the trend of roughly 1m per year, which implies an 80k boost to the monthly breakeven rate of job growth to 155k.
Looking ahead, Goldman Sachs says immigration is about 1 million higher than usual this year so that implies break-even jobs growth of +125K.
With that Goldman Sachs boosted its GDP and jobs numbers for this year.
One of the biggest puzzles of the last year has been that the labor market has continued to rebalance and the unemployment rate has increased somewhat despite surprisingly strong payroll growth and GDP growth. The explanation appears to partly be that elevated immigration has boosted labor force growth and, by extension, potential GDP growth.
For the Fed, the read through (if they agree) is dovish as it creates a higher bar for payroll growth this year and explains why the jobs market wasn't really that strong in 2023. It also raises the stakes for the 2024 election because it could mark the start of a sharp reversal in immigration.
