Goldman's 80% Immigration Plunge: A Labor Market Flow Shock

The core data point is stark: Goldman Sachs projects net immigration will plummet from an average of approximately 1 million people per year during the 2010s to just 200,000 in 2026. That represents an 80% decline from the historical baseline, a collapse driven by policy, not just border security.

This marks a historic shift. The report notes that net migration was likely close to zero or negative over calendar year 2025 for the first time in at least half a century, with estimates ranging from -10,000 to -295,000. The flow shock is now projected to deepen into 2026, with the economy facing a sustained period of negative net migration.

The shock is attributed directly to aggressive policy changes. Goldman's analysis links the forecasted drop to elevated deportations and a suite of new restrictions, including a pause on immigrant visa processing for 75 countries and an expanded travel ban. These measures are designed to slow inflows of visa and green card recipients, fundamentally altering the labor supply pipeline.

Labor Market Mechanics: Capping Job Growth and Wages

The labor market is already operating at a tight capacity. With the labor force participation rate at 62.5% and the unemployment rate at 4.3%, there is little slack to absorb a sudden shock. The projected collapse in net immigration directly capping the potential for job growth. Goldman Sachs estimates the new sustainable pace of monthly job creation will be between 20,000 and 50,000. A significant slowdown from recent years.

This sets the stage for a potential contraction in 2026. The report explicitly states that monthly job growth could be negative next year. The mechanism is straightforward: reduced migration dampens consumer spending and GDP growth, contributing 30-40 basis points less to potential US GDP growth than the 2023-2024 pace. This constrains the labor market's ability to expand.

For inflation, the impact is expected to be muted. The report argues that with the labor market now "back in balance," the direct pressure from reduced immigration on wage growth should be modest. The key flow is already set: a labor force that can no longer grow at the historic pace of 100,000 per month above pre-pandemic levels, falling to a normal baseline by early 2026.

Catalysts and Risks: The Path to 2026

The baseline assumption is clear: restrictive policy will continue, driving the projected 80% collapse in net immigration. The key variable is the pace of enforcement. Goldman's analysis notes that measures like elevated deportations and visa processing pauses are already slowing inflows. Any intensification of these efforts would accelerate the labor supply shock, pushing the economy toward the lower end of its new, constrained growth trajectory.

January's payroll data provides an early signal of this new reality. The economy added 130,000 jobs, a figure that now sits well above the report's estimated sustainable cap of 20,000 to 50,000. This suggests the labor market is still operating with some excess demand, but the flow is already shifting. The risk is that this temporary buffer erodes quickly as policy takes full effect.

A more subtle pressure point is emerging in the broader labor pool. While the headline unemployment rate fell to 4.3%, the broader U-6 measure fell to 8.0%. This decline, which includes underemployed workers, hints at growing strain beneath the surface. If policy-induced labor shortages intensify, this segment of the workforce could face even more acute pressure, adding a layer of economic friction to the flow shock.