Changing immigration policy is making it hard to parse U.S. job market
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Is job creation in the United States strong or weak? The answer is surprisingly foggy right now because of what we don't know about immigration.
Why it matters: Fluctuations in the number of incoming immigrants are making it harder than usual for the Federal Reserve to discern whether the job market is too hot, too cold or just right.
- An influx of migrants in 2022 and 2023 enlarged the supply of workers and enabled rapid job growth despite an already tight labor market.
- A border clampdown this year may have reversed the trend, which would make a slowdown in job growth in the last few months less an alarming sign about the economy and more a mechanical effect of fewer new migrants entering the workforce.
What they're saying: "I suspect the recent immigration flows have and will continue to affect labor markets in ways that we do not yet fully understand and cannot yet accurately measure," said Fed governor Michelle Bowman in a speech Monday morning.
Flashback: New data from the Congressional Budget Office earlier this year recast our understanding of what happened in the labor market in the post-pandemic expansion.
- That led Brookings Institution researchers to conclude that labor force growth due to immigration meant that the U.S. could create 160,000 to 230,000 jobs a month in 2023 without stoking inflation, not the 60,000 to 130,000 previously estimated.
State of play: More recently, the Biden administration's border clampdown may be changing that, as evidenced by falling apprehensions of those trying to cross the U.S.-Mexico border.
- The numbers "are shifting right under us because of changes in administration policy over the course of the year," said David Altig, chief economic adviser at the Atlanta Fed, said Sunday in a panel at the NABE conference.
- That is a reason to think that the job growth — which has averaged 116,000 a month over the last three months — isn't surprisingly weak, but actually "pretty much normal," Altig said.
Between the lines: Almost by definition, it is impossible to know in real time just how many people are crossing U.S. borders; those who cross illegally are doing their best to keep out of view of authorities.
- Even those with legal status may not be fully reflected in labor market data. Government survey-takers have a hard enough time collecting data from native-born Americans, challenges that are compounded for populations with language barriers and precarious housing situations.
- Moreover, businesses that employ illegal immigrants under the table presumably do not want government data collectors to know they're doing so.
The bottom line: The job market may not be quite as weak as the recent payroll reports suggest — but there's a lot of uncertainty attached.
