Revising the Census Consensus

Below is a transcript of this week’s video.

Hi, this is Ilona Vovk with Investment Strategy at Glenmede.

Over the last two years, the Congressional Budget Office appears to have underestimated population growth by a cumulative 1.5%. While that figure may not seem like much at face value, that is more than 5 million people now calling the U.S. home beyond what was initially projected. The underlying source of this large revision appears to be a surge in net immigration (which CBO defines as the number of people who enter the United States in a given year minus the number who leave in that year).

A higher population is generally good for the economy. More people means a larger consumer base and labor force, which directly boosts overall economic growth. Over the long term, it should be no surprise that nominal gross domestic product (GDP) growth is closely correlated with population growth. Even in the short run, last year’s blowout GDP growth figures may, at least in part, result from higher-than-expected immigration.

But, while a growing population supports economic activity, major shifts in population can have implications for the sufficiency of key community infrastructure, which includes services like healthcare, education, and housing—sectors of the economy that cannot be quickly recalibrated to new equilibria in the near term. On the flip side, with a domestic labor market that continues to struggle to reach its own equilibrium due to a shortage of available workers, increasing labor supply via immigration could help bring the jobs market into greater balance. This could potentially relieve some wage pressures, which have been a significant factor in the recent waves of higher-than-normal inflation.

In sum, the net impact of this recent spurt in population growth has been, and should continue to be, a contributing factor to the resiliency of the U.S. economy.

So to summarize: Congressional Budget Office recent updates show a significant increase in net immigration which has led to an unusually large revision to U.S. population estimates. Generally a rising population provides a larger consumer base and labor force, lifting overall economic activity. However, population shifts can also have implications for the sufficiency of infrastructure (e.g., healthcare, education, housing) as well as the supply of goods and services. In sum, the net impact of this recent spurt in population growth has been, and should continue to be, a contributing factor to the resiliency of the U.S. economy.

And with that, thank you for listening! And please don’t hesitate to reach out with any questions.