A recent analysis by Standard Chartered finds that the Trump administration’s immigration policies will further stifle US trend employment growth. This would lead to a drastic reduction in the future growth of foreign-born labor. This expected downturn represents a major break from employment trends after such strong growth in recent years.
Economic experts have loudly been sounding alarms over a slowdown in the US labor supply. They credit this decline to the administration’s draconian immigration policies. The STA analysis indicates that the labor market probably experienced excess supply from May through July. Over this period, average non-farm payroll (NFP) growth dropped through the floor to just 35,000. This figure is an important signal of a serious slowdown from recent years and increasing questions about the long-term sustainability of this pace of jobs growth.
Our labor market needs a net of over 200,000 jobs per month just to keep the unemployment rate steady given normal labor market churn. Standard Chartered predicts that this new monthly job growth equilibrium is around 100,000. As the table below shows, this projection is well below our three-year rolling average of NFP growth. Consequently, it could be much harder to sustain as many jobs going forward.
According to the report, native-born workers will account for more than 70% of new jobs through population replacement. Foreign-born workers will make up the other 30%. The annual growth rate for the foreign-born population is projected to decline more than twofold. It should settle back down to something like 1.3%, lower than the just under 4% we experienced over the 2022-2024 period. This dramatic slowdown in immigration is about to have long-term consequences on net US employment growth.
In a note issued earlier this month, Dan Pan, an economist at Standard Chartered, stressed the importance of these trends.
“Our 100k trend estimate suggests that the labour market was likely in excess supply between May-July, when average NFP growth slowed sharply to 35k. Nevertheless, the deterioration in the labour market seems less dramatic considering weaker labour supply from foreign-born workers.” – Dan Pan, Standard Chartered’s Economist
Pan further explained what it would mean to return to pre-pandemic immigration growth rates.
“We estimate that if annual growth in the foreign-born population returns to the pre-pandemic average of around 1.3% – a sharp slowdown from around 4% in 2022-24 – US trend employment growth will be running at around 100k per month, well below average NFP growth over the past three years. 70% of that trend job growth would be driven by population growth among native-born workers, while 30% would come from population growth among foreign-born workers. There are risks to our estimate in either direction.” – Dan Pan, Standard Chartered’s Economist
Nonetheless, the report raises questions about the apparent short-term employment slowdown. Is it the result of a decreased supply of labor or an increased demand for labor? Many experts, including those at the Federal Reserve, have long expected a slowdown in labor supply due to unfavorable shifts in immigration policy. It’s really critical that we monitor the shifting demand dynamics of the labor market.
Pan stated,
“An important question behind the recent employment slowdown is whether soft job growth is driven by lower labour supply or weaker demand. A slowdown in US labour supply driven by the Trump administration’s immigration crackdown has long been anticipated. But if immigration growth falls back to the pre-pandemic norm as expected, what should trend employment growth be?” – Dan Pan, Standard Chartered’s Economist