Volatile trade policy is getting all the media attention lately. But another risk to the growth outlook is also playing out — an end to the high immigration rates that were a feature of the U.S. economy in recent years.

Why it matters: Most economic policymakers say immigration helped loosen the tightest labor market in decades and eased inflation. Whatever your views on the policy, plummeting border crossings — paired with White House deportation plans — mean economic adjustment ahead.

• It is a key element of President Trump's economic shock therapy, with uncertainty about what the mix of policies — lower immigration, higher tariffs and more — will ultimately mean for businesses and consumers.

What they're saying: "For US economic growth, immigration policy deserves more attention," Seth Carpenter, chief global economist at Morgan Stanley, wrote in a recent note.

• "Immigration has been a fundamental part of the US growth story in the post-Covid phase," Carpenter wrote. A slowdown will affect growth, "boost inflation and present a thorny choice for the Fed."

By the numbers: Morgan Stanley expects net immigration of about 1 million this year and 500,000 in 2026, both notably lower compared to their estimated 2.7 million in 2024.

• Signs of a crackdown have been enough to slow immigration flows at the U.S. southern border. In February, there were about 8,300 border apprehensions, Axios reported earlier this month — the fewest on record in data that goes back to 2000.
• Deportation threats of "millions and millions" of immigrants have yet to fully materialize: Deportations are, so far, on par with that of former President Biden's final weeks in office.

The big picture: Some fear that the worker boost seen in 2022 and 2023 will play out in reverse.

• Morgan Stanley economists note that their estimate of 1 million in net immigration could trim the GDP level by as much as 0.6 percentage point this year and next.

What to watch: Large-scale deportations would be a labor market supply shock that coincides with another tariff-related supply hit. The worst-case scenario is an inflation double whammy.

• The construction sector might be among the most at risk. It depends heavily on immigrant workers. It also depends heavily on supplies — lumber, copper and more — that are prime tariff targets.

What they're saying: "The irony is that the tariffs' impacts on construction costs might just price some manufacturers out of their decision to expand or add plants in the U.S.," said Jeffrey Shoaf, CEO of the Associated General Contractors of America.

Consumers are becoming sharply more pessimistic about the economic outlook, according to a preliminary reading of the University of Michigan's sentiment survey for March.

Why it matters: The mix of new tariffs, federal cutbacks, erratic policy, and a slumping stock market is dampening Americans' optimism. That risks generating self-fulfilling economic weakness in the event consumers act on their newfound sense of worry.

• Lower sentiment was strikingly broad-based, seen "across all groups by age, education, income, wealth, political affiliations, and geographic regions," survey director Joanne Hsu said in the announcement.

By the numbers: Overall consumer sentiment fell by about 11% in the month to 57.9, the third straight month of decline. That level is the lowest since the fall of 2022, when Biden-era inflation was still running high.

• The decline was sharpest among Democrats, whose expectations declined 24%, but sentiment among Republicans fell 10% as well.
• Inflation expectations also surged, with survey respondents now expecting inflation over the next year of 4.9%, up from 4.3% a month ago

Of note: Long-term inflation expectations also surged, to 3.9% in March from 3.5% in February. That will be particularly worrying to Federal Reserve officials, who may be reluctant to respond to any weakening in the economy due to fears that inflation expectations are coming unmoored.

• That was the largest one-month rise in long-term inflation expectations since 1993.

What they're saying: "While current economic conditions were little changed, expectations for the future deteriorated across multiple facets of the economy," Hsu wrote, "including personal finances, labor markets, inflation, business conditions, and stock markets."

• "Many consumers cited the high level of uncertainty around policy and other economic factors; frequent gyrations in economic policies make it very difficult for consumers to plan for the future, regardless of one's policy preferences," she added.

Yes, but: The preliminary reading of the Michigan survey, released mid-month, is based on a relatively small sample of around 420 households.

• The final March number, based on about 800 survey respondents, is to be released March 28.
• Moreover, the relationship between sentiment surveys and actual spending is weak. Consumer spending held up fine during the last period of depressed sentiment indicators in 2022, for example.