Goldman raises US GDP and job growth forecast

Stock bulls in particular are anticipating signals from the Federal Reserve this week that it might be better to cut interest rates before June. But recent strong economic data has cast doubt on this. Now this is a sign of an even stronger US economy: Goldman Sachs today raised its forecasts for US economic growth (gross domestic product or GDP) and job growth this year.

US GDP forecast increased

“One reason for the strong GDP growth in 2023 is that immigration has been above historical averages, which has boosted the labor force and potential GDP,” Goldman economist Ronnie Walker wrote in a note, Bloomberg Sunday. “We have updated our employment and GDP forecasts to reflect the continued boost in immigration above.”

Goldman now expects US GDP to rise 2.4% year over year in the fourth quarter, up 0.3 percentage points from its previous forecast, driven by higher consumption. By 2024, the Wall Street bank expects a growth rate of 2.7% on a calendar year basis. The number of people working is expected to rise to an average of 175,000 per month this year, and the unemployment rate is expected to remain at 3.8%, up from 3.9% in February.

Goldman noted that the Congressional Budget Office recently increased its U.S. population projections to reflect higher immigration, which also caught the attention of economists at Morgan Stanley. The Morgan Stanley team, led by Ellen Sentner, said last month that if the CBO is correct, “this would mean a higher number for sustainable wage growth than widely believed.”

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Immigration is an important political issue in the United States. Republicans have criticized President Joe Biden for not doing enough to stop the movement of undocumented people along the Mexican border. After Fed Chair Jerome Powell said immigration was a factor in last year's strong growth rate — GDP rose 3.1% in the fourth quarter from a year earlier — he faced questions from lawmakers at hearings this month.

Goldman economists are “less confident in some aspects of the CBO's methodology,” Walker wrote in the note. “However, we estimate that immigration will be approximately 2.5 million persons in 2023, which is higher than the 1.6 million indicated by the change in the foreign-born population in the household census,” he wrote. The group expects immigration to be 1 million above trend this year.

FMW/Bloomberg

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