U.S. jobs depend on immigrants?Nomura: Not exactly

So far this year, the US employment data shows that the labor market remains resilient, and one of the reasons that cannot be ignored is the increase in the number of immigrants.

On April 16, Nomura Securities released a research report exploring whether the higher immigration rate fully explains the resilience of the labor market. The report notes that higher migration flows have been a potential reason for strong economic growth and resilience in labor force data, but it does not fully explain the surge in non-farm payrolls, especially the significant difference between household and business surveys.

Nomura believes that the trend in the overall job market is still biased towards the results of the agency survey, and the employment number of the household survey may pick up or be revised upwards in the future.

Too many immigrants driving up employment?

In the study, Nomura noted that a report released this year by the Congressional Budget Office (CBO) pointed out that official demographic statistics underestimate the surge in immigration: in 2023, the net number of immigrants in the United States is 3.3 million, while the Census Bureau's estimate is 1.1 million, which is only one-third of the former.

The report notes that the CBO's view quickly became the consensus of the market and the Fed, leading to an upward revision of market expectations for employment trends and GDP growth, and providing an after-the-fact explanation for the slowdown in inflation while the economy shows resilience in 2023.

But Nomura argues that the CBO's data is similarly flawed and cannot be relied upon solely as a basis for the surge in immigration.

Currently, the two main official sources of population data are the American Community Survey (ACS) and the Census (CPS), and the difference between CBO and official census estimates comes primarily from differences in border transit data.

The official statistical caliber comes from the ACS data, while the CBO statistical caliber comes from the Department of Homeland Security (DHS), which has significantly faster data.

On the one hand, ACS and CPS have limitations in measuring newcomers, but on the other hand. DHS's border crossing statistics may also have the problem of double counting.

In addition to data from DHS and the Census Bureau, other potential indications such as remittance data and housing data also provide a caliber for immigrant population valuations, but the results are not clear.

Remittance data from the balance of payments show that Mexico and the Northern Triangle countries (Guatemala, El Salvador, and Honduras) both directly measure remittance inflows as a share of U.S. wage income, which has shown a significant upward trend in recent years.

In terms of housing data, rental vacancy rates increased slightly from late 2021 to 2023, although states with the highest percentages of foreign-born residents did not experience disproportionate housing market shocks.

Moreover, in state-level labour market data, no significant relationship was found between the number of immigrants and differences between household surveys and established survey employment estimates.

In addition, job growth in recent years has been concentrated in some large service industries, where the proportion of workers in these industries is relatively small.

The report also notes that other employment indicators show trends that diverge from the NFP data.

ADP employment shows a slowdown in labor market growth, and the PMI is also slowing in positive territory.

This suggests that the underlying job growth data may be somewhere between the non-farm payrolls and the household survey data – less aggressive and less flat.

As a result, the report concludes, there is no strong evidence that the increase in immigration has resulted in significant differences between household and institutional surveys, and that there may be some undercaptured structural changes that affect labor market performance.

Nomura believes that the underlying trend in the labor market is closer to the results of the agency survey, and that subsequent data and their revisions will push down the net employment rate and thus the household survey employment rate.

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