Does Spike in Immigration Distort Job Picture?
This is a blockbuster report adding 303,000 jobs in March, much higher than anyone expected while average hourly earnings rose only 4.1% from a year ago, the smallest annual gain since June 2021. How is it possible to add so many jobs month after month without wage pressure? It raises questions about how the economy can sustain such a robust addition of jobs month over month without experiencing upward pressure on wages. One plausible explanation is the recent spike in immigration, which could be contributing to this trend. According to estimates by the Congressional Budget Office, the immigrant rose by 3.3 million in 2023, continuing into 2024. This surge has contributed to a notable increase in the labor force by 469,000, one of the highest in recent years.
Immigrant workers are included in the payroll surveys, irrespective of their legal status, as long as they are officially employed. This inclusion is particularly significant in industries like agriculture, construction, leisure, and hospitality, which often face labor shortages and heavily rely on immigrant workers. In March, the leisure and hospitality sector, encompassing bars, restaurants, and lodging, contributed 16 percent of the overall employment growth. Additionally, the healthcare and education sectors, along with government jobs, accounted for 52 percent of the new employment figures for the month.
In any case, the job picture is much stronger than anyone anticipated. What should the Federal Reserve do? It will have to wait longer before cutting the interest rate. Chairman Powell has talked about two risks facing the central bank: the risk of lowering the interest rate too soon and the risk of keeping the interest rate high too long. The FOMC is in no hurry to cut the interest rate. Some Fed officials predict only one cut or no cut this year. However, the market has not given up on a rate cut starting in June. CME’s FedWatch Tool now predicts that there still is 59 percent of a cut in the interest rate in June.
The robust employment figures, coupled with the slowing wage growth, present a favorable scenario for the stock market. However, the bond market is experiencing additional pressure, as the rate cut is likely to be delayed.