- Foreign-born workers are leading the increase in the US labor force, Fitch Ratings said.
- But a labor demand cooldown may cause an oversupply in the market, it cautioned.
- Jobs growth in the government sector is also fueling the labor market.
US labor momentum seems stuck in high gear, after March added yet another blowout jobs report.
But a simple explanation could lie in US immigration trends, as a surge of foreign-born workers is propelling labor expansion, Fitch Ratings reported on Thursday.
"Increases in the U.S. labor force post-pandemic have been led by foreign-born workers, which represented 19% of the U.S. labor force at YE 2023, higher than 17% as of YE19," the ratings agency wrote. "The foreign-born labor participation rate is 66%, more than the native-born participation rate of 62%."
These figures come as net immigration averaged 0.9% of the US population for the past two years, surpassing estimates of 0.3%.
But while higher immigration flows should keep labor momentum going through this year, Fitch also cautioned that it risks an oversupply.
That's as weakness is starting to show in labor demand. According to Wall Street analysts, that includes rising layoff announcements, lack of full-time job opportunities, and a plunge in business hirings.
Still, migrants' contribution to labor has significantly boosted economic growth, Fitch said, a point shared by previous research.
For instance, Goldman Sachs lifted its 2024 GDP outlook due to this labor surge, while JPMorgan and Morgan Stanley highlighted immigration's positive impacts on US output.
In a separate report published Thursday, Fitch also named a secondary source fueling the impressive labor market: government hiring.
Job growth in this sector averaged 2.7% on an annual basis in 2023, the highest year-over-year rate since 1990, the ratings firm reported. It's unlikely to slow for now, as government employment is still lagging behind the private sector.
"The post-pandemic recovery for government payroll did not begin until much later in 2021 because most government educational institutions maintained a remote only system with minimal staff throughout 2020," Olu Sonola said in the report, head of U.S. economic research.