The current labor market may be beginning a downturn that could necessitate interest rate cuts. High levels of immigration previously inflated payroll numbers, hiding labor market weaknesses. Deportations, self-deportations, and worker fears of raids can decrease worker numbers, hindering job creation as the baby boomer generation retires. Notably, even with a rising unemployment rate, job growth remained strong due to increased immigration. Employment data is further complicated by the demographic shifts and immigration trends, making traditional economic indicators less reliable.
Reliable numbers on immigration flows are hard to come by in real time, particularly for migrants with ambiguous legal status.
If a large number of immigrants are being deported, self-deporting, or staying away from their workplaces for fear of immigration raids, it would translate into fewer workers on employers' payrolls.
Normally, the 35,000 average monthly job growth from May through July would be a four-alarm labor market fire.
We learned in '23 and '24 that if there are big immigration changes going, aggregate numbers like total GDP growth and total job creation can be very misleading short-run indicators of where we are in the business cycle.
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