Goldman Sachs believes the U.S. economy will grow faster than expected this year as increased immigration adds more workers to the U.S. labor force.
In a new research note on Sunday, Goldman cited increased immigration as it raised its forecast for annual economic growth in the fourth quarter from 2.1% to 2.4%. For the full year, Goldman now sees the U.S. economy growing at a 2.7% annual rate.
„One reason GDP growth was strong in 2023 is that immigration has been above recent historical averages, 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 wages and GDP forecasts to incorporate the current boost in immigration above.”
Goldman's research suggests that immigration will top 1.5 million in 2023 and top 1 million in 2024. For the team at Goldman, this helps explain the surprising job creation seen in the labor market last year. Growth across the economy has been higher than expected.
An increase in immigration also helps explain the recent increase in the unemployment rate, which rose from 3.7% to 3.9% in February. An increase in immigration means more workers entering the labor force, which is not generally seen as a negative cause of rising unemployment.
This, Goldman argues, means that the recent run-up in unemployment may not be a sign of an overall slowdown in the labor market. The company sees the U.S. labor market ending this year with an unemployment rate of 3.8%.
„Last year's increase in unemployment reflects an increase in the labor supply from new immigrants, which is unlikely to trigger the 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 group to recently highlight how increased immigration can contribute to economic growth. In January EY Chief Economist Greg Dago noted the increase in the Yahoo Finance Chartbook.
„The resurgence of U.S. immigration has played a key role in improving population growth and improving labor force participation, making a significant contribution to the restructuring of the labor market,” Daco told Yahoo Finance in January. „This influx of new workers is helping to ease the tightness in the labor supply, particularly in sectors that still experience supply shortages, which is helping to moderate wage growth pressures, thereby favoring inflationary pressures.”
He added: „This demographic shift promises to inject much-needed dynamism and diversity into the workforce, providing a more balanced and sustainable path for the economy.”
Josh Shaffer is a reporter for Yahoo Finance. Follow him on X @_joshschafer.
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