US: Trend employment growth shifts lower – Standard Chartered

Immigration crackdown suggests much lower US trend employment growth than in the last few years. We estimate that the new equilibrium for monthly job growth is 100k. Recent NFP softness suggests that the labour market is now likely in excess supply, Standard Chartered's Economist Dan Pan reports.

Falling below a lower trend

"An important question behind the recent employment slowdown is whether soft job growth is driven by lower labour supply or weaker demand. A slowdown in US labour supply driven by the Trump administration’s immigration crackdown has long been anticipated. But if immigration growth falls back to the pre-pandemic norm as expected, what should trend employment growth be? In the absence of a surge in undocumented immigrant inflows, we see trend employment growth moving lower. This means that the amount of job creation needed to keep up with labour-supply growth and maintain a stable unemployment rate may be significantly lower than the last few years."

"We estimate that if annual growth in the foreign-born population returns to the pre-pandemic average of around 1.3% – a sharp slowdown from around 4% in 2022-24 – US trend employment growth will be running at around 100k per month, well below average NFP growth over the past three years. 70% of that trend job growth would be driven by population growth among native-born workers, while 30% would come from population growth among foreign-born workers. There are risks to our estimate in either direction. Trend employment growth might be lower if the Trump administration’s immigration policy leads to a sharper slowdown or decline in foreign-born labour supply; if more native-born workers decide to return to the labour market after opting for early retirement during the pandemic, the trend employment may be pushed higher."

"Our 100k trend estimate suggests that the labour market was likely in excess supply between May-July, when average NFP growth slowed sharply to 35k. Nevertheless, the deterioration in the labour market seems less dramatic considering weaker labour supply from foreign-born workers."