Jobs Up Despite Trump


Trump often whines about the mainstream press ignoring his economic accomplishments. He cites the current labor market as a shining example of his economic prowess.  Is their distaste for him clouding their perspective of his stewardship over the jobs economy?

On the surface, this sounds like an easy question. We have an unemployment rate that has reached levels not seen in almost two decades at 3.9 percent. We are in the midst of positive job growth that has exceeded 91 months, which far exceeds the next longest recorded of 48 consecutive months that ended in 1990.  Of course, Trump should get the lion’s share of the credit, right?

Hold on a second, it might not be so straight forward.

While Trump once proclaimed that he’ll be the “greatest job producer God has ever created”, he will need a more robust performance in 2018. Even though it was a good year, he fell 156,000 short of the 2.3 million jobs produced in Obama’s last year.

Even with an unemployment rate that has dipped below 4 percent, we are performing near the middle of our peers. Both Germany and Japan have lower unemployment rates with the United Kingdom not too far behind.  America First… let’s try America Middle of the Road.

Maybe that’s not fair since the powers of the executive office are limited. Typically, it takes legislation that either reduces taxes or increases government spending to spur economic development. However, Trump faced significant push back from both political parties bitter at his antics and vitriol rhetoric. Thus, he was unsuccessful in achieving health care reform and could not pass tax reform until 10 months into his tenure. That is not soon enough to demonstrably change economic activity yet.

It is hoped that lower taxes for both industry and households will spur even more job creation.  With previous statutory corporate tax rates the highest in the world, its drastic cut should incentivize more investment spending.  The addition of more factories, equipment, and facility expansion offers more opportunities for construction workers and other blue-collar men and women who were drawn to his populist instincts.  Then there’s the expectation that households will spend their extra $100-200 a month on goods and services and lead business to expand jobs even more.

That all sounds like a plausible strategy.  The only problem is one of timing. Our economy was already performing near its peak and wasn’t in need of more stimulus. Instead of outpacing Obama-era jobs, my betting money is on it outpacing past deficits.

But then there’s the prospect of Trump going for broke and realigning the bonds of international trade.  Concerned with bulging trade deficits and outsourcing of jobs, he has decided to disregard his economics background and tear up international agreements in favor of revisions that place American interests first.

That sounds good as he’s a populist where his ideas are ‘popular’ with the general public.  However, a more nuanced look offers a less pleasant outcome. Let’s say the U.S. is able to achieve the most favorable scenario where the U.S. is able to bully both allies and foes to submit to our will (doubtful scenario, by the way), it will still result in higher prices for consumers and higher production costs for most U.S. producers.

For instance, let’s say the U.S. is able to negotiate more favorable terms where less Canadian lumber is imported into the U.S. Certainly, U.S. lumber producers will rejoice as they will see their profit margins widened and perhaps grow employment with less competition. But with their greater market power, they can impose higher supplier costs on construction and furniture companies. Those additional cost pressures will make job expansion less likely in those sectors and offset any gains from U.S. lumber.

That is the problem with the Trump Economic Doctrine.  For every company that benefits from trade restrictions, many more will be hampered by it. In fact, we will see its negative effects locally as Southwest Georgia farmers are bracing to be hit hard. Renegotiating the free trade agreement with Mexico and Canada threatens their livelihood as their steady source of income are at risk. If the agreement is broken or revised to slow the flow of trade between our borders, that hurts farmers.

Let’s revert back to wages. Aren’t we seeing higher wages as proclaimed in Trump’s State of the Union?  While it’s true that wages are rising, it is modest at best. In fact a look at the Atlanta Fed’s Wage Tracker shows that this year’s pace is falling behind last year’s. Mind you, that faster wage growth occurred without lowering taxes. Though businesses gave ‘bonuses’ to each workers as a token gesture in return for their financial largesse, Main Street America are still left with the scraps and the ‘promise’ for a better tomorrow.

Then there are the loyal administration supporters that point to the reduced regulatory red tape as being the primary driver to job expansion.  It is accurate that President Trump was able to navigate beyond constitutional constraints to sign executive orders to minimize the burden of governmental regulation. He has also been helped by the morally challenged, but highly effective Environmental Protection Agency head Scott Pruitt who has rolled back many Obama-era rules protecting the environment.

This has been a boon for the manufacturing and banking sectors, who have seen their fortunes reversed. Even though employment numbers are up for both sectors, their overall impact is limited with their respective gains of 265,000 and 145,000 only representing a miniscule portion of the jobs created under the Trump era.

On the other hand, the rest of the regulatory framework has been pretty much untouched due to our impotent Congress. Thankfully, there have been no further changes to rules aimed at protecting workers and society in general. Amazingly, it hasn’t stopped other sectors from growing their employment numbers. That is because there are other forces at play that have nothing to do with regulation.

Both the U.S. and the world have been able to shed the debt incurred from the Great Recession. Combine that with monetary policy acts by former Fed Chairs Bernanke and Yellen (both Obama appointees) and both scenarios have juiced our recovery without stoking too much inflation (though Trump’s erratic foreign policy is trying to reignite those pressures).  This has unleashed the less burdened consumer to spend more with businesses reacting by padding payrolls.

We have seen a reinvigorated Europe and global community that are spending more on U.S. products. It remains to be seen if the protectionist wave that has hit the United Kingdom will reverse this trend once they formally negotiate out of the European Union, but so far U.S. exporters are benefitting from enhanced trade.

In closing, let’s use a golf analogy as an aside to Trump’s favorite pastime. He suffered a bogey on the first hole as his health care reform fell flat on its face, but then gained momentum in the next few holes with the eventual passage of tax reform.  The weather is perfect and the course is playing for a very low score. While shooting under par, there were many birdie opportunities missed. But ominous clouds appear overhead and playing conditions will definitely worsen. Does he have the steady hand and guile to guide us through the travails of an uncertain future?

In my mind, Trump is that unconventional amateur that has avoided hitting water so far and might make the cut to play through the weekend.  But anyone thinking his simplistic, go-for-broke style is suited for the long haul is only fooling themselves.

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Are The Jobs Numbers Fake Now?


When similar results were posted in past employment data, Trump was dismissive and calling them lies. Now that the first labor report of his nascent presidency has been released, he is changing his tune. Trump officials are now openly touting the numbers as evidence that they are facilitating change. In reality, it is not much different than what we have seen over the last year.

There was an increase of 235,000 jobs and a modest decrease of the unemployment rate is 4.7 percent. Certainly, this is a positive development, but we should also recognize that there were 2,000 more jobs created at this time last year.

Having said that, Trump should receive some credit for the upbeat news. His promise to introduce more business-friendly legislation is being warmly received by business leaders and that’s reflected in bulging stock markets. Also, his efforts to reduce environmental oversight has already reaped benefits in manufacturing. After a long period of stagnant growth, there have been 57,000 jobs added in the past three months with almost half of that total occurring in February.

On the other hand, there hasn’t been demonstrative change in other employment factors. The labor force participation rate has changed little from 63.0 percent from 62.9 percent last year. Also, the employment-population ratio edged up slightly from 59.8 percent to 60 percent. An alternative measure of unemployment accounting for those only marginally attached to the labor force dropped to 9.2 percent. While continuing a long-running downward trend, its rate was matched as recently as last December.

As for wage growth, it continues to fall short of the three percent threshold that’s been illusive in recent history. In fact, we haven’t reached that growth level in almost six years. Currently, wages have grown by 2.5 percent over the past twelve months. While that’s better than last month, the average wage growth for the first two months of this year (2.3 percent) is slightly behind last year’s pace of 2.4 percent.

Until Trump passes a legislative agenda that reflects changes to taxes and regulation, it is unfair to judge his record, regardless of whether the future economy expands or contracts over the next few months. Let’s wait until this time next year where we can then more accurately measure his economic stewardship as commander-in-chief.

In summary, the employment picture is brightening, but that trend started long before the inauguration of Trump last November. It is more accurate to say that he effectively crafted a misleadingly gloomy view of employment prospects that elevated him to an improbable victory.

What’s fake is insinuating that the labor market is only now experiencing positive change.

Germany’s Merkel In Brexit Pickle


EU Chancellor and German Prime Minister Angela Merkel is in quite a predicament. Though facing intense pressure from global investors to negotiate favorable terms for a Brexit, she is reluctant to send a message that would ultimately lead others to follow the United Kingdom (UK) out of the European Union (EU).

One of the prime benefits of being a member of the EU is its ease in facilitating global trade. Since its establishment in 1993, Europe enjoyed great economic prosperity as global investors flocked to a region where rules crossing country lines were consistent.

For instance, British banking systems were able to provide financial services throughout the continent. Now by divorcing themselves from the EU, will they be prohibited from doing so? If that is true, then the loss of significant deposits from the Eurozone would severely compromise capital levels and impair their lending functions.

Of course, these concerns could be ameliorated through favorable divorce terms out of the EU. That means allowing British banks to continue offering financial services throughout the continent. Certainly, global investors would support these measures, but it’s highly unlikely that other EU member-nations find that acceptable.

They would wonder how can the UK maintain the benefits of their previous alliance and avoid the costly politics behind liberal immigration policies. This sort of free lunch would surely lead other European leaders to ask, “What’s in it for me?”

If Merkel and the EU cave in to the demands of the British, wouldn’t they risk even greater contagion? If they do, it’s time to set into motion actions to extract themselves completely out of the European Union and the Euro. The financial and legal costs of such maneuvering would be mind-boggling, but they would have no other choice.

The consequences of such action would make the Great Recession feel like a pebble in an ocean.

If the objective is to keep the EU and the Euro together, Merkel can only extract herself out of this pickle by standing firm.

Is Jobs Engine Running Out of Steam?


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After experiencing optimism earlier in the year, there are signs that the U.S. jobs engine might be slowing. Certainly, the turmoil experienced in China, Europe, and the Middle East are finally starting to drag down the economy.  Then the lack of robust business investment is especially problematic.  Unless that turns around soon, we might be approaching recessionary status.

The Bureau of Labor Statistics released its jobs report for September and it showed a steady unemployment rate of 5.1 percent with an increase of 142,000. Labor force participation rate continues its steady trickle downward to 62.4 percent, though the employment to population ratio showed a modest tick up to 59.2 percent.

Even though the unemployment rate remains steady, the rate of job growth has slowed. Over the last three months covering July-September, we have experienced an average of 167,000 jobs. That is almost a 30 percent decline from last year’s rate.  With construction, manufacturing and wholesale trade showing little change, that offers a hint that this downward trend could continue as we head toward winter.

It is troubling that business investment hasn’t followed suit with consumer spending.  Though household spending has been relatively healthy at 3.2 percent over the last year, we cannot say the same for industry.

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Even though some of that can be attributed to uncertainty from various political and global events, it will be difficult to maintain a robust economy without further investment.  Both shipments and new orders of core capital goods have shown negative growth over the last year.

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Another issue is that wages remain stagnant.  Over the last year, wages have grown at a 2.2 percent pace, which is well below what we experienced pre-recession.  Until we see wages approach the 3 percent clip, it will be difficult to imagine a more robust economy in the future.

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Is this the beginning of a downward spiral?

 

Are We Seeing Weakness In U.S. Jobs Market?


March job numbers were disappointing.  Even though the unemployment rate was unchanged and this marked 61 months of positive job growth, job gains of 126,000 was the lowest since December 2013.  Though one should not overreact to data over a month’s period, we are seeing evidence of a disturbing trend.  Here’s the quarterly job rates over the last four quarters:

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Certainly, the last quarter of 2014 performance was strong, but the first quarter saw a decline of 39 percent and this was despite low gas prices that you would think boost consumer spending.  However, that has not occurred.  It is possible that a stronger U.S. dollar and Middle East turmoil might be finally filtering to U.S. employment figures.  A stronger dollar makes U.S. goods relatively more expensive than foreign goods, so that would lead to lower sales and dampened expectations for job growth.  Then factor in troubled spots throughout the global economy and that also diminishes outlook for U.S. exporters, who have gained greater influence over the overall economy.

So is this temporary or a precursor to further decline?

Most industries witnessed little growth, though there were some modest exceptions.  Retail trade employment rose at a similar rate to last year.  There are also steady gains in the health care industry.  Even though there were job gains in professional and business services, its rate of increase was less than last year.  However, there was not much growth in any other sectors.

Despite these concerns, there are some positive trends to note.  One, the unemployment rate is falling and the labor force participation rate is starting to stabilize a bit.  There has been little change in the labor force for over a year.  We can see this from the Atlanta Fed graph below.

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Another encouraging sign is that long-term unemployment continues to fall over the last year.  Over the last year, the percentage of long-term unemployment has fallen from 35.3 percent to 29.7 percent.  Due to this improvement, a broader gauge of unemployment (U-6) has fallen from 12.6 percent to 10.9 percent since March 2014.

On the other hand, there are troubling signs that appear to be on the horizon.

  1. Manufacturing activity is falling.
  2. Retail sales, excluding food, have fallen over the last couple of months.

With falling gas prices, one would think that it would loosen the pocketbook of consumers, but that has not come to fruition yet.  Retail sales have fallen below expectations over the last few months, which suggests that they are not pocketing this new-found wealth back into the economy.  A recent slowdown in manufacturing activity may mean that firms are not expecting robust growth this year.  That is consistent with a survey of CEOs, who are predicting modest growth that will fall below the 3 percent threshold that would point to good growth.

In summary, it appears that the downside risk outweigh the upside risk, so do not be surprised if turbulence returns to the labor market.

Recent Job Reports Charting Success


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The February jobs report was released by the Bureau of Labor Statistics on Friday.  It paints a relatively rosy picture with solid job growth of 295,000 and a declining unemployment rate that reached 5.5 percent.  Wall Street Journal’s Real Time Economics provides an informative snapshot of the recent job trends in employment.

Chart 1:  Year-to-year job gains are steadily rising.

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Chart 2:  Unemployment rate continues to fall.

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Chart 3:  Labor force participation rate continues to fall which is not good, but employment to population ratio is rising, which is good.

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Chart 4:  Even though the type of jobs are improving, we are still seeing more part-time jobs than full-time jobs.

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Chart 5:  Unemployment rate is falling for all levels of education.

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Chart 6:  Long-term unemployment rate has steadily fallen, suggesting that the job market is improving.

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Chart 7:  While length of unemployment remains higher than pre-recession period, it is also falling.

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Chart 8:  While long-term unemployment is still above pre-recession levels, short-term unemployment is below it.

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Chart 9:  Even though average hourly wages remain relatively stagnant, the number of hours worked is rising, which is driving up average weekly earnings over the last quarter.

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Chart 10:  Recent surge in employment suggests that we might be near full employment.

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When evaluating labor markets, it is more useful to evaluate them over an extended period.   Most of these ten charts suggest that the U.S. labor market is headed in the right direction.

 

 

Labor Market Momentum Continues To Grow


The Bureau of Labor Statistics released their January 2015 jobs report that showed the economy grew by 257,000 jobs and the unemployment rate had a modest increase at 5.7 percent.  This is a good sign because January and February are typically slow hiring months with weather being a factor.  Over the last six months, we have gained at least 250,000 jobs or more in four of those months with an average job growth of 282,000.

Here is why the figure of 282,000 is significant.  If we can maintain this pace over the next two years, then we can close the jobs gap originating from the Great Recession before 2017.  Even though we have recovered all of the jobs lost from the Great Recession, a gap remains because there were not enough jobs created to account for the growth in the labor force.

When consumers feel that low gas prices will be permanent, we feel ‘richer’ and that will show in our spending habits.  As a result, we have seen retail trade employment grow by 46,000.  Other industries enjoying gains include health care, financial services, and manufacturing.

Another encouraging sign is in construction.  Despite January typically being a slow month due to weather, there was a gain of 39,000 jobs.  This figure exceeds monthly average of 28,000, thus suggesting that the housing market and business activity might see gains in the future.

Previously, we have seen job gains, but wages have been stagnant.  Hopefully, that trend will begin to reverse, which we have seen in January with average hourly wages increasing by 25 cents.  Even though the Fed will closely monitor wage growth for concern of inflation, Americans will be gratified to see their pay increase in the future.

Here are three graphs courtesy of the St. Louis Fed’s FRED research website that show how much the labor market has improved over the last year.

  1. Civilian unemployment rate is steadily falling.                 Screen Shot 2015-02-09 at 3.59.34 PM
  2. The alternative measure of unemployment (U-6) rate that attempts to measure discouraged workers and underemployed workers continue to fall.   Screen Shot 2015-02-09 at 4.00.52 PM
  3. Part-time employment for economic reasons is also falling.  Screen Shot 2015-02-09 at 4.02.03 PM

We are off to an encouraging start in January, so let’s hope the momentum continues through the year.