20 Mar 2024 4 min read

The American dream

By Tim Drayson

We believe the unanticipated surge in US immigration is helping to increase the chances of an economic soft landing by filling excess vacancies and supporting consumer spending.


The resilience of the US economy has surprised many economists (including this one). I have many explanations for why the forecast went wrong. These include huge and partly accidental fiscal support, household excess saving, the ongoing recovery in non-cyclical sectors following the pandemic and good fortune with the supply shocks quickly reversing, allowing the US Federal Reserve to ‘pivot’ its monetary policy rhetoric.

But we can now add immigration to the list. The extent of the inflows has only just become apparent. Wall Street economists have been slow to acknowledge the shift despite evidence on their doorsteps of a sudden wave as migrants were bussed from border towns to New York shelters.

As shown in pinning the tail on the donkey, it was only recently the Congressional Budget Office (CBO) revised up its estimates of immigration and recent and future potential growth.

What’s behind the influx in immigration?

  1. Pent-up demand after lockdown
  2. Government policy
  3. Global migration trends

The current system is extremely complex and not designed to handle the number of migrants at the borders. Congress can’t agree on how to fund or fix the issue. The Biden administration has only limited flexibility and has decided to uphold existing domestic and international laws and grant asylum seekers a fair hearing.

The net result is those who turn up unauthorised at the border and ask for asylum are not screened. Instead, they are released into the US to await proceedings in the immigration courts.

Advances in communication make it easier for migrants to share information about the loopholes in the US immigration system and opportunities and services available. What they are hearing is that the backlog in the courts is so extreme (three million) that cases are projected to take over four years to be assessed.

In the meantime, asylum seekers awaiting hearings can apply for work. This process can also take time, but recently work permits have been expediated to allow arrivals to support themselves and move out of shelters. In September, the Biden administration granted temporary protection and work authorisation to almost half a million Venezuelan migrants.

Labour market impact

Immigration statistics are highly flawed. Counts from earlier periods are considered vastly understated because migrants often evaded authorities. There is data on border encounters (3.2 million in the 2023 fiscal year), but families are counted as one and there is no penalty for rejection, so applicants return.

The true number of migrants in the US is unknown, but the CBO estimates net immigration last year of 3.3 million. Within that, 2.4 million are considered nonlegal or pending. This number also include an estimate of those who slipped into the US without declaring themselves to border authorities.

The surge in immigration also helps explain why the US labour market has appeared to rebalance despite still strong employment data. As shown in the chart, normally it takes a recession to reduce wage pressure and ease recruitment difficulties.


Making some reasonable assumptions about labour force participation among migrants, this would mean a sustainable level of payroll growth could be around 200,000 a month. This is about double what economists had previously thought.

There are questions around whether official employment statistics capture immigrants working in the US. The surveys ask many questions, but your immigration status is not one of them. This should mitigate the need to avoid the questions if you are not in the official asylum system.

In addition to increasing labour supply, migrants also spend, which has supported overall consumer spending. The Brookings Institute estimates this could have amounted to a couple of tenths boost to consumer spending in 2023.

We still think the US is in the latter stages of the economic cycle. We hesitate to say the cycle clock can turn back in time, but the pandemic and now immigration has led to some warping!

Looking ahead, immigration looks set to remain strong in 2024 and a potentially contentious issue heading into the US elections. Perhaps this is one reason consumer confidence is still relatively low alongside Biden’s approval rating despite a robust economy.

We see the potential for greater inflationary pressure if Republicans win Congress and the White House. This could result in a much tougher stance on immigration, higher tariffs and bigger budget deficits, particularly as the Trump tax cuts would be likely to be extended.

Tim Drayson

Head of Economics

Tim keeps a close watch on global economic developments, with a particular focus on the US. He believes nothing good ever happens after midnight, which is why he is rarely spotted out late. Tim joined in 2008 from the number-one ranked economics team at ABN AMRO, with prior experience from HM Treasury, and graduated with a MSc from the University of Nottingham. When not crunching economic data, he can be found studying the weather forecast, analysing his cycling statistics or looking anxious on three-foot putts.

Tim Drayson