The US labor market is no longer what it was six months ago. Job creation has slowed sharply, hiring data has been revised down, and the workforce has shrunk by over 1.6 million foreign-born workers since March.
Immigration accounted for nearly 90% of US labor force growth since 2019 and has now collapsed under President Donald Trump’s aggressive crackdown.
The consequences are starting to show in everything from factory assembly lines to GDP forecasts.
How fast is the labor market changing?
July’s jobs report was a wake-up call. The economy added 73,000 jobs, but previous months were revised down by 258,000.
The unemployment rate ticked up to 4.2%. Job gains were almost entirely in healthcare and social assistance. Manufacturing, business services, and even parts of retail either stalled or shed jobs.
The Labor Department’s data also showed a sharp contraction in the labor force. More than 1.6 million foreign-born workers have exited since March. This is the result of policy changes and not a seasonal adjustment.
Data from Reuters suggest that since Trump’s return to the White House, more than 1 million of foreign workers have exited the workforce altogether.
Immigration arrests have surged 268% compared with last June, according to a Guardian analysis, and deportations are now running at levels not seen in years.
ICE carried out a record single-day sweep of roughly 2,000 arrests in early June. For the first time, non-criminal immigrants now make up the majority of arrests.
Detention centers have swelled from 40,000 to 55,000 people between January and June, far exceeding the 41,500 beds funded by Congress.
The administration has committed $45 billion to doubling capacity, while targeting 3,000 arrests per day, or one million annually.
In just six months, 127,000 people have been deported, including 8,100 sent to third countries under new legal authority.
Net unauthorized immigration has collapsed by 95% year over year, according to the Dallas Fed.
What’s more is that ICE raids are creating such fear that even legal workers are staying home, according to employers in agriculture and manufacturing.
Why the crackdown is hitting the economy
The Dallas Fed estimates that reducing unauthorized immigration to near zero will shave one percentage point off GDP growth this year.
If deportations accelerate toward Trump’s stated goal of one million per year, the hit could deepen to 1.6 percentage points by 2027.
The model is simple: fewer workers mean less output.
Labor supply has been one of the US economy’s main growth engines since the pandemic. When that engine is throttled, the slowdown shows up quickly in payroll data and production.
Economists warn that ending programs like the CHNV parole initiative and Temporary Protected Status could remove another 1.1 million workers from the economy. That equals nearly 0.8% of the US workforce.
Goldman Sachs takes a softer view but still sees risk. Their baseline forecast assumes immigration slows to 750,000 per year, enough to reduce potential GDP growth by 30 to 40 basis points relative to 2023–24.
They warn that agriculture, food processing, and construction, where immigrants make up 15-20% of the workforce, are most exposed to deeper cuts.
What this means for inflation and wages
The administration insists that fewer immigrant workers will lift wages for Americans. The data shows a different story.
The Dallas Fed’s analysis finds that a crackdown of this scale has only a modest wage effect but does add to inflation. Their model suggests prices could rise 0.6 percentage points above baseline by 2027 because shortages push up costs in food, construction, and services.
We are already seeing signs of this. An Oxford Economics study from June concluded that tighter immigration enforcement risks permanently raising production costs.
Federal Reserve officials now face an uncomfortable mixture of a weaker labor market and sticky inflation.
This creates a stagflationary setup where both sides of the Fed’s mandate are under pressure.
Sectors on the front line
Agriculture is the first sector to feel the strain. Farmers are already reporting that labor is running short.
The International Fresh Produce Association warns of higher food prices and reduced domestic output if nothing changes.
Manufacturing is next. GE and Kraft Heinz are already cutting shifts or extending hours because workers who have been in the country for decades are losing their legal status.
Similar reports are emerging from union halls in the Midwest. These are not isolated disruptions.
Construction, transportation, and hospitality are following the same pattern. Employers cannot find enough workers, and where they can, they are paying more to keep them. In a tight-margin business, those costs flow to prices.
The bigger picture for growth
Immigration was one of the factors that kept the US economy expanding even as interest rates climbed.
By holding labor supply steady, it dampened wage-driven inflation and allowed businesses to grow. But that support doesn’t exist anymore.
The Dallas Fed’s baseline forecast shows the economic damage is already underway. The 0.8 percentage point gap between their projection and the Congressional Budget Office’s outlook indicates that when immigration flows collapsed earlier this year, growth potential fell with them.
Investors have been slow to react. Equity markets have priced in tariffs and interest rate risks, but not the structural labor shortage created by enforcement.
The road ahead
The administration argues that Americans will fill the jobs vacated by immigrants. So far, that has not happened. The number of unemployed Americans has increased slightly, but not in the sectors facing the largest losses.
The skills mismatch is real, and time is running out for industries like agriculture and manufacturing to adjust before output is hit.
If Trump reaches his target of mass deportations, the consequences could be severe. Slower growth, persistent price pressures, and deeper labor market fractures are on the table.
Even if enforcement stops at today’s levels, the economy is already feeling the drag.
What’s evident is that immigration policy has shifted from a political debate to an economic force.
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