Goldman Sachs upgraded its US real GDP growth forecast in a note Monday, reflecting elevated immigration.
One of the biggest puzzles of the last year has been that the labor market has continued to rebalance, and the unemployment rate has increased somewhat despite surprisingly strong payroll and GDP growth.
Goldman Sachs believes the explanation appears to partly be that elevated immigration has boosted labor force growth and, by extension, potential GDP growth.
"Recent studies suggest that Census data used for the household survey of then employment report understated immigration in 2023," said analysts at the firm. " We estimate that immigration was 1½mn above the trend of roughly 1mn per year in 2023, which implies an 80k boost to the monthly breakeven rate of job growth to 155k."
Analysts estimate immigration will be about 1 million higher than usual this year, implying breakeven job growth of around 125k and a 0.3pp boost to potential GDP growth in 2024 from faster labor force growth.
As a result, Goldman Sachs now expects payroll growth to average 175k per month this year and slow to 150k per month by year-end, though they expect this only to lower the unemployment rate to 3.8% by year-end.
"We have also raised our 2024 real GDP growth forecast by 0.3pp to +2.4% on a Q4/Q4 basis (or +2.7% on a full-year basis), mostly by upgrading consumption growth," added the analysts.