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This transcript has been generated using machine learning technology. While this technology was trained with CIBC terminology, it may contain errors.
Introduction: Welcome to Eyes on the Economy by CIBC Capital Markets, a podcast series dedicated to addressing current issues in a concise format, helping to make sense of the evolving economic complexities, so that you can take action.
Ali Jaffery: Hello everyone, welcome to another edition of Eyes on the Economy. I’m Ali Jaffrey, your host for today’s podcast. And I’m joined once again by our chief economist, Avery Schenfeld. And we’re going to talk about a note that we just released titled, This Way to the Exit, The Economic Impact of US Immigration Policy. And so Avery, let’s kick off the discussion. You the US has clearly tightened the land border. You know, they’re starting to deport undocumented persons.
And there’s a real push against immigration at the moment right now. So what does this mean for population growth and trend US growth?
Avery Shenfeld: Population growth had already been decelerating really in recent decades due to the declining birth rate, which wasn’t completely offset by both legal and undocumented immigration. But now it’s on a significantly tighter path. It’s not clear that the Trump administration will reach its stated goal of 3,000 ICE arrests per day.
That would be about 90,000 a month, but they have ramped it up dramatically. We’re at about 25 to 30,000 a month, so we’re well on our way to that pace. If you project that ahead, it does entail quite a significant further deceleration in population growth versus where we are prior to Trump’s election. Instead of population growing on the 0.5 to 0.8 % a year,
we could see very, very slow population growth, decelerating to as little as 0.4%, maybe even 0.2 % if we manage to deport a million people a year, as the Trump administration has said its goal is. But even as I said, half that pace would give us about 0.4 a year. And so if we think about that in GDP terms, unless we got a significant acceleration in productivity,
That means that we’re going to shave somewhere around 0.7, 0.8 % a year off GDP growth, simply having fewer workers on the supply side and of course less demand from a slower growth in the consuming population over time.
Ali Jaffery: Okay, and what about fiscal policy? What are the views about how this is going to affect the overall fiscal landscape in the US?
Avery Shenfeld: Well, it’s not just that the population growth is going to slow, but more significantly, the ratio of people of working age, say 25 to 64, for example, prime working age people, to the number of people over 65 is going to continue to deteriorate. And now it’s already been on that trend, but if you look at longer-term forecasts for U.S. budget deficits, the item that weighs most heavily on that projection, the reason
that economists are a bit fearful of where we’re headed over the coming decades is that increasingly we’re gonna have fewer and fewer people working and more and more people drawing on social security and Medicare payments. Even under the high immigration population scenario that the Census Bureau ran, that ratio of workers to elderly dependents would basically only stabilize. But in a low immigration path,
and the one the Census Bureau ran isn’t as negative as what the Trump administration’s objective would end up being, would make a significant difference. Now, the two lines on the chart in our publication don’t look that dissimilar, but if you just measure the fiscal hit over the next decade, it could be a difference of about $400 billion cumulatively as a result of a further deceleration in…
the size of the working age population relative to the number of retirees.
Ali Jaffery: So what I’m hearing is all else equal we have materially weaker trend population growth, growing fiscal strains. Should we expect immigration policy to stay on this course?
Avery Shenfeld: Well, the question is really, what does it mean for GDP per capita? Are living standards actually going to get worse or better? And of course, mathematically, living standards could get better on an average basis if you end up deporting people who were at the lower end of the income scale. But that doesn’t mean that people at the upper end of the income scale have actually been made better off. You just kicked out the 20 % of the students in the class with the lowest grades. The average of the rest of the students go up even if their academic performance doesn’t improve.
And so the question is how much of a strain this current policy would be over time. Certainly there are some industries, construction and agriculture in particular, where undocumented people are a big part of the workforce and you could start to see some strains there and some vocal complaints from those in sectors about the need for more workers. And as well as the issue that I talked about earlier on the dependency ratio.
And Americans themselves who were still in the United States may find that they can’t find the people that they’re used to employing as child care workers and so on with this lower pace of immigration. know, fortunately, there is a safety valve. So before we write off the next decade as one of economic stagnation, remember that the US relative to other countries has a much slower pace of legal immigration.
And that’s a dial that could be turned up if the economy really does find itself desperate for additional workers. There are lots of people around the world who are eager to move to the United States. Green cards are always in high demand. And the U.S. in a few years might well decide that even if politically Americans seem to back tight control at the border in terms of undocumented immigrants, and even if Americans continue to vote for an elevated pace of deportation,
That doesn’t preclude them electing congressmen and senators or even a future president who decides that we do need a bit more population growth in the U.S. economy and we start bringing in more legal workers.
Ali Jaffery: Interesting. Now let’s kind of turn the attention to the here and now. So what does this mean for payroll growth, more importantly what does it mean for the Fed in September?
Avery Shenfeld: I think in terms of payroll growth, we may have already seen the first slice of this. There was a lot of hewing and crying about the extremely weak three-month average rate of payrolls growth in the last set of employment numbers. That’s what really started the louder calls for a Fed rate cut in September. But what was interesting is the unemployment rate really hasn’t budged. And part of the issue here is that population growth has already slowed. And the bar, the…
the number you need of jobs to hold a given unemployment rate is dropping significantly. So we estimate, for example, that it might take as little as 40, 50, 60,000 workers added each month to hold a given unemployment rate. That’s a lot lower than that number used to be. And with the further acceleration and deportations, that number in the next few years could drop to as few as
20,000 new jobs a month being consistent with a stable unemployment rate. So when the Fed looks at the labor market, yes, they have seen signs of a slowing in job growth. But what they really haven’t seen yet is a material increase in unemployment that’s going to open up the kind of labor market slack we have in Canada that puts real downward pressure on inflation. And instead, of course, we’re seeing the leading edge of some of the inflation that we were anticipating
showing up in the next few months because of tariffs. More of it was in the PPI than the CPI. The CPI was masked by declining car prices, but if you strip that out, actually, for other goods, other core goods, other than autos, we are seeing some upward momentum there. So we’re not as convinced, not nearly as convinced as the market, that the Fed should be in a hurry to cut interest rates in September.
The most recent retail sales report was quite solid, suggesting that the next payrolls report could well end up being another one where we’re still holding at a 4.2 % unemployment rate and there’s not opening up much slack there. And so our call is actually for a cut in October, giving the Fed a little more time to see more of a slowing, maybe a little more comfort with the inflation numbers.
Avery Shenfeld: outside the tariff items, looking for some signs that those are still reasonably contained. And so we see a cut in October and December. And even then, maybe it is partly the political pressure on the Fed to act rather than the pure economics that would have them moving as early as October.
Ali Jaffery: Thanks a for that, Avery, and think that’s a good place to stop. Thank you, everyone, for joining us today. And remember, you can check out our research and forecasts on the CIBC Economics website. And until next time, we’ll be keeping our eyes on the economy and calling it as we see it. Thank you.
Outro: Please join us next time on the Eyes on the Economy where we will share our latest perspectives and outlook for the Canadian and US economy.
Disclaimer: The information and data contained herein has been obtained or derived from sources believed to be reliable, without independent verification by CIBC Capital Markets and, to the extent that such information and data is based on sources outside CIBC Capital Markets, we do not represent or warrant that any such information or data is accurate, adequate or complete. Notwithstanding anything to the contrary herein, CIBC World Markets Inc. (and/or any affiliate thereof) shall not assume any responsibility or liability of any nature in connection with any of the contents of this communication. CIBC World Markets Inc. or its affiliates may engage in trading strategies or hold positions in the issuers, securities, commodities, currencies or other financial instruments discussed in this communication and may abandon such trading strategies or unwind such positions at any time without notice. CIBC Capital Markets is a trademark brand name under which different legal entities provide different services under this umbrella brand. Products and/or services offered through CIBC Capital Markets include products and/or services offered by the Canadian Imperial Bank of Commerce and various of its subsidiaries. For more information about these legal entities, and about the products and services offered by CIBC Capital Markets, please visit www.cibccm.com. Speakers on this podcasts are not Research Analysts and this communication is not the product of any CIBC World Markets Inc. Research Department nor should it be construed as a Research Report. Speakers on this podcast do not have any actual, implied or apparent authority to act on behalf of any issuer mentioned. The commentary and opinions expressed herein are solely those of the individual(s), except where the speaker expressly states them to be the opinions of CIBC World Markets Inc. Speakers may provide short-term trading views or ideas on issuers, securities, commodities, currencies or other financial instruments but investors should not expect continuing analysis, views or discussion relating to these instruments discussed herein. Any information provided herein is not intended to represent an adequate basis for investors to make an informed investment decision and is subject to change without notice. CIBC World Markets Inc. or its affiliates may engage in trading strategies or hold positions in the issuers, securities, commodities, currencies or other financial instruments discussed in this communication and may abandon such trading strategies or unwind such positions at any time without notice.

The economic impact of U.S. immigration policy

Avery Shenfeld

Managing Director and Chief Economist

CIBC Capital Markets

Ali Jaffery

Senior Economist

CIBC

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