Goldman Sachs believes the US economy will grow faster than it originally expected this year as increased immigration adds more workers to the US labor force.
In a new research note on Sunday, Goldman cited increased immigration when raising its forecast for economic growth year-over-year in the fourth quarter to 2.4% from 2.1%. For the full year, Goldman now sees the US economy growing at a 2.7% annualized rate.
“One likely reason why GDP growth was stronger in 2023 is that immigration ran well above the recent historical average, boosting the size of the labor force and potential GDP,” Goldman Sachs economist Ronnie Walker wrote in a research note on Sunday. “We have updated our payrolls and GDP forecasts to incorporate the ongoing boost from above-trend immigration.”
Goldman’s research suggests that immigration was 1.5 million above trend in 2023 and will come in 1 million above trend in 2024. To the team at Goldman, this helps explain the surprise job creation seen in the labor market over the last year, as well as the higher than expected growth seen across the economy.
The increase in immigration also could help explain the recent uptick in unemployment, which increased to 3.9% from 3.7% in the month of February. An increase in immigration would mean more workers coming into the workforce, which typically isn’t viewed as a negative reason for unemployment to increase.
This, Goldman argues, means the recent run-up in unemployment isn’t likely a sign of an overall slowdown in the labor market. The firm sees the US labor market ending this year with a 3.8% unemployment rate.
“The increase in unemployment over the last year mostly reflected an increase in labor supply from new immigrants, which is unlikely to trigger a vicious cycle of job loss, income loss and further unemployment that is typically associated with increases in the unemployment rate,” Walker wrote.
Goldman isn’t the only economics team to recently highlight howan increase in immigration could be contributing to economic growth, either. In January EY chief economist Greg Daco noted the increase in the Yahoo Finance Chartbook.
“The resurgence in US immigration is playing a pivotal role in bolstering population growth and enhancing labor force participation, contributing significantly to the rebalancing of the labor market,” Daco told Yahoo Finance in January. “This influx of new workers is aiding in alleviating the tightness in labor supply, especially in the sectors still experiencing a supply shortfall, which in turn is helping to moderate wage growth pressures, thereby favoring disinflationary pressures.”
He added: “This demographic shift promises to inject much-needed dynamism and diversity into the workforce, offering a more balanced and sustainable path forward for the economy.”
Josh Schafer is a reporter for Yahoo Finance. Follow him on X @_joshschafer.
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