Dallas Fed Warns Immigration Decline May Slow Labor Market and Spending

A notable decline in immigration to the United States may jeopardize the nation's future economic growth, according to a recent report from the Federal Reserve Bank of Dallas.

Between 2021 and 2024, the U.S. experienced a significant increase in unauthorized immigration; however, recent policy changes have led to a sharp decrease in migrant entries, particularly following the implementation of stricter asylum rules by the Biden administration in June 2024. 

As of March 2025, the monthly net unauthorized immigration saw a significant decline of 82%, decreasing from 105,000 to merely 19,000 individuals.

The report, co-authored by Federal Reserve economists Pia Orrenius and Xiaoqing Zhou, anticipates that immigration policy from 2025 to 2027 will have a significant influence on labor force participation and economic activity in the long term.

“Even at the start of this year, immigrants continued to join the labor force,” stated Orrenius, vice president of research at the Dallas Fed. “However, that momentum is diminishing.” Multiple factors contribute to this trend, including stricter border enforcement, the end of Temporary Protected Status (TPS), and a decrease in the number of work permits being issued or renewed.

Between 2021 and 2024, the Congressional Budget Office projected that 7.3 million foreign nationals—many of whom were unauthorized or held limited legal status—would arrive in the U.S. The extent of growth surpassed the trends observed before the pandemic; however, the recent decline could potentially undo those advancements.

The report indicates that the ongoing immigration slowdown carries broader implications beyond just labor shortages. Zhou, the assistant vice president of research, pointed out that a decline in the number of immigrants leads to a decrease in demand for goods and services, potentially affecting overall job creation.

“The reduction in the number of immigrants leads to spillover effects on non-immigrant workers as well,” Zhou stated. “It’s not solely about the supply side.” The loss impacts consumers, students, and taxpayers.

Orrenius also cautioned about the potential “chilling effects” on economic participation. Numerous undocumented immigrants might refrain from going out, spending money, or utilizing services because of the fear of deportation—even if enforcement actions do not specifically target them.

“They may not leave the country,” Orrenius explained, “but they’re less inclined to leave their homes, less inclined to attend church or school, and less inclined to spend money.”