The "cold" and "hot" immigration data are pulling U.S. economic expectations between pessimism and optimism.
Recently, President Joe Biden announced an executive measure aimed at significantly limiting illegal immigration. Specifically, the policy stipulates that when the daily average number of illegal entries at U.S.-Mexico border checkpoints reaches 2,500 within a week, the border will close to asylum applications from illegal immigrants. Those caught illegally crossing may be swiftly deported or sent back to Mexico. The border will only reopen when this number drops to 1,500.
According to Morgan Stanley analyst Sam D. Coffin in a recent report, if this new policy is effectively implemented, the total number of immigrants is expected to plummet by nearly half, which could drastically tighten the labor market supply and significantly slow GDP growth.
Biden's Immigration Regulation Could Severely Restrict Labor Supply
Coffin noted that if the new policy is effectively implemented, the total number of immigrants will drop from 3.3 million in 2023 to 1.8 million annually, leading to a dramatic tightening of the labor market supply.
"In our mid-year outlook, we estimate that 3.3 million immigrants in 2024 would equate to a monthly increase of 265,000 in employment, and 2.6 million immigrants in 2025 would align with a monthly increase of 210,000," Coffin explained. "In contrast, if the number of immigrants falls to 1.8 million, the labor market might only avoid tightening if monthly job additions drop to around 160,000."
Coffin also projected that if the new policy is effective, real GDP growth is expected to slow by 0.3 percentage points. "If immigration slows following the new policy, it could subtract about 0.3 percentage points from our growth estimates for real GDP," he added.
Monthly Border Crossing Data Becomes a Key Monitoring Indicator
The recent changes in immigration data are influencing U.S. economic expectations. On one hand, upward revisions of immigration data since the beginning of the year had significantly boosted employment and GDP growth forecasts; on the other hand, Biden's new policy casts a shadow over these optimistic forecasts.
The market is closely monitoring monthly border data to gauge the impact of Biden's new policy. In March and April, illegal immigration data showed a declining trend, possibly indicating that immigration policy is quietly tightening.
Coffin noted that in the six months prior to February, U.S. Customs and Border Protection reported a 10-20% increase in illegal immigrants at entry points compared to the previous year. However, in March and April, the numbers were below last year's levels. Mexico seems to be preventing more immigrants from entering the U.S., reportedly using buses to transport them away from the U.S. border. The number of people migrating from the south to Mexico continues to rise.
Undocumented Immigrant Inflows May Be Hidden in Employment Data
The report pointed out that over the past year, U.S. employment growth has averaged 250,000 per month, far exceeding the approximately 100,000 monthly increase from domestic population growth. This data has sparked concerns about overestimation.
However, analysts believe this is one of the few indicators that reflect the number of immigrants without work permits. "The employment growth figures may implicitly include undocumented immigrants, highlighting the hidden impact of immigration on the labor market," Coffin noted.
As the market continues to watch the unfolding effects of Biden's immigration policy, the implications for the U.S. economy remain a crucial point of analysis.
