Wall Street is divided on the question of whether immigration is behind us, the hiring of slowing down

Some argue that the hiring decline mainly reflects a smaller offer of workers, thanks in part to the repression of the immigration of President Donald Trump. Others say that the slowdown is largely due to a more worrying reduction in demand.

The distinction is critical. If the difficulty in finding workers is the main factor, the trends in weak hiring probably do not prefigure wider layoffs and the federal reserve can maintain high interest rates. But if the hiring slows down mainly due to the request for the demand for labor, this would encourage the central bank to intervene.

“Whether what we see is all the effects of immigration or if it is the effects of demand is certainly the key question,” said Veronica Clark, economist at Citigroup Inc. “There are most likely immigration effects in data, but details also suggest lower demand with immigration, which seems to get worse.”

The latest job report of the Bureau of Labor Statistics, published on August 1, shocked the financial markets with low hiring figures for July and decrease in the previous two months. It was such a surprise that Trump pulled the head of BLS, accusing the agency, without evidence, of fucked the figures to make it seem bad.

These adjustments have reduced the pace of payroll growth to only 35,000 on average in the last three months, the slowest since 2020. Although the unemployment rate has increased to 4.2% in July, corresponding to the highest level since 2021, it is still not very different from that where it is in the past year.

Analysts spent unusual time during the following week continuing to dissect the report. The dramatic changes of the Trump administration in the commercial and immigration policy this year has made work to read the labor market much more difficult, just as these changes have increased the challenges of continuous economic expansion.

Read more: Autopsy of a black swan – July pay revisions

The key question depends on the impact of reduced immigration. Two days before the publication of the report, the president of the Fed, Jerome Powell, told journalists that the Fed would reduce a slowdown in hiring in the coming months as long as the unemployment rate does not increase.

The FED chief even suggested that the so -called profitability threshold rate – the number of jobs that the US economy had to add each month to maintain the stable unemployment rate – could be as low as zero, given what is happening with immigration.

Powell’s interpretation and job reports himself sorted Wall Street in two main camps. Many best economists – including those of Morgan Stanley, Barclays Plc and Bank of America Corp. – pointed out that the slowdown in hiring concerned more labor supply, predicting that the Fed would expect to start reduction rates until December.

Other economists – such as those of Goldman Sachs Group Inc., Citigroup Inc. and UBS Group AG – interpreted the rapid deterioration of hiring more as a sign of low labor demand, which would push the Fed starting with rate reductions at its next political meeting in September.

“We note little contradiction between slow employment growth and a low unemployment rate when the effects of immigration controls are taken into account,” wrote economists from Morgan Stanley led by Michael Gapen in a report of August 1 after the publication of figures. However, given the speed with which hiring seems to slow down, “we would not need much to modify our opinions,” they said.

The two parties gathered various data points to support their analysis. The problem is nothing in the middle of the plethora of the statistics contained in the employment report itself can definitively answer the question in one way or another.

Immigration policy

The report includes a rupture of foreign workers and born on the basis of a household survey, and the figures indicate that the workforce born abroad and the population have dropped by about a million in the last three months – a number of administration officials was quick to seize their immigration policy achievements.

“Since the president took office, he created around 2.5 million jobs for the Americans, when we have eliminated around a million jobs for workers born abroad,” said Stephen Miran, president of the White House economic advisers, during a TV appearance of August 1 CNN.

“It is the result of our strong immigration policy, our strong border policy, America’s security,” said Miran, that Trump appointed Thursday to complete a temporary niche to the Fed Governors’ Council.

But many analysts, including those of Bloomberg Economics, have broken down the drop in the active population, noting that it is largely linked to the way the data is built. Many economists highlight a simultaneous and improbable increase in the workforce and the number of populations of native origin.

“It is not that we suddenly gave birth to many 16 -year -old children and increased the native population,” said Jonathan Pingle, American economist in UBS.

With the demographic rupture of the report based on the household survey which seems increasingly questionable, analysts are trying to focus more on data on the hiring of a survey of companies – the one that saw the big revisions down for May and June – said.

The best way to do so is to find a list of industries most dependent on an immigrant workforce and try to estimate if they are obviously worse. And different people draw different conclusions from the essentials of the same exercise.

Bank of America economists have underlined a low hiring in construction, manufacturing and leisure and hospitality, sectors where undocumented immigrants and those who lose their legal status are more likely to be employed. Goldman Sachs economists, on the other hand, have noted that the industries that depend on immigration do not really see slower employment growth than say, those who are exposed in a disproportionate way to prices.

The rate of participation in the active population has dropped by 0.4 percentage points in the last three months, marking the greatest drop in this type in eight years, excluding the start of the pandemic.

Those who consider immigration as the culprit behind the slowdown in hiring cite the drop in participation as an indicator of the drop in supply. Citi Clark said that the worsening of demand conditions could also weigh there.

“These two problems would imply that the provision of labor is decreasing this year – slowing down immigration and low demand, because participation in the active population generally falls into slowdowns,” said Clark. “But if the low demand is the most overwhelming force, it will not be enough to prevent the unemployment rate from increasing.”