(March 18): Goldman Sachs Group Inc has raised its projections for US economic and jobs growth for this year to account for a faster pace of immigration.

“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 labour force and potential GDP,” Goldman economist Ronnie Walker wrote in a note Sunday. “We have updated our payrolls and GDP forecasts to incorporate the ongoing boost from above-trend immigration.”

Goldman now sees US gross domestic product increasing by 2.4% year-on-year in the fourth quarter, marking a 0.3 percentage-point upgrade on the previous forecast, mostly based on higher consumption. The Wall Street bank sees a 2.7% growth rate for 2024 on a calendar-year basis.

Payroll gains should now average 175,000 a month this year, with the unemployment rate ending at 3.8% — down from the 3.9% rate posted for February.

Goldman noted that the Congressional Budget Office recently boosted its US population forecasts to account for higher immigration, something that also caught the attention of Morgan Stanley’s economists. The Morgan Stanley team, led by Ellen Zentner, said last month that if the CBO is right, “it could mean much higher steady-state payroll growth numbers than has been the common wisdom.”

Powell hearings

Immigration is a sensitive political issue, with Republicans blasting President Joe Biden for what they characterise as insufficient measures to stem an influx of undocumented people along the Mexican border. After Fed chair Jerome Powell said that immigration was a factor in last year’s strong growth rate — GDP rose 3.1% in the fourth quarter from a year before — he was peppered with questions by lawmakers at hearings this month.

Goldman’s economists “have less confidence in some aspects of the CBO’s methodology,” Walker wrote in the note. “We nonetheless estimate that immigration was around 2.5 million in 2023, well above the 1.6 million level implied by the change in the foreign-born population in the household survey,” he wrote.

The team sees immigration remaining about one million above trend for this year.