U.S. economic growth is expected to slow in 2025 due to constrained labor supply under the Trump administration.
One impact is stricter curbs on illegal immigration. Another is an expected slowdown in legal immigration. Both are expected to result in a decline in net immigration levels, defined by the U.S. Census Bureau as the difference between the number of people entering the U.S. and the number of those leaving in a given year. Last December, the Census Bureau said that a net of 2.8 million people migrated to the U.S. between 2023 and 2024.
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In an S&P Economic Research report, U.S. population growth is one of the main factors behind the positive economic growth of the last two years, with net immigration accounting for more than 80 percent of the gains. The report said lower net immigration will hurt labor-sensitive sectors, such as construction and hospitality, where immigrants account for a large share of the workforce.
“Immigration, one of the most important factors in the U.S. economy in the last couple of years, will likely become a headwind to growth,” chief U.S. economist at S&P Global Ratings Satyam Panday said. “Based on trend productivity growth of 1.5 percent, the economy’s growth potential is likely going to be closer to 2 percent, from over 2.5 percent the last several years.”
Panday’s conclusion is based on two factors: the absence of a rise in both labor productivity growth and the employment rate of the working-age population. Both are keys to offset declining population growth.
For the wholesale and retail trade, foreign-born civilian workers for men and women totaled 15.6 percent in 2023, up a shade from 15.3 percent in 2019. While retail jobs will be far less impacted by lower net immigration levels, other areas such as “information” and construction will be harder hit, at 13.7 percent in 2023 versus 11.9 percent in 2019 and at 28.6 percent in 2023 versus 27.6 in 2019, respectively. Manufacturing employed foreign-born civilian workers at a rate of 20.2 percent in 2023, versus 18.6 percent in 2019. And in professional and business services, the employment rate was 22.9 percent in 2023, versus 20.7 percent in 2019.
The S&P report noted that immigration boosts both demand and supply. The upside is easy to understand and see when the economy is booming, construction projects get the green light, and new jobs are created. Those factors contribute to a virtuous cycle that often begets continued expansion, which is a plus for spending at retail.
But a scenario where there’s a lack of workers presents different challenges to retail. Fewer workers could result in higher wage growth for those still employed. While that tends to provide more spending power at retail, employers will see cost inflation on the labor front. And if higher wage growth occurs at the same time as import tariffs, the pass along of those costs to consumers could lead to a pullback in spending. Moreover, constraints in the labor pool could raise concerns over which projects get the green light to move forward. And if consumers sense that there could be fewer opportunities for job growth, consumer confidence falls and spending tends to decline.