The Jobs Report Is a Validation of Trump's Economic Policies
With the mid-term elections now only three months away, Republican candidates should be running on the Trump economy. The economy truly is better now than it was under Obama, and Friday’s “Employment Situation” report from the Bureau of Labor Statistics (BLS) provided solid evidence for this.
July’s “headline” (U-3) unemployment was 3.87%. Except for this May, this was the lowest for any month since the 1960s. However, that wasn’t the big news. The big story is that we are finally seeing the labor market tighten sufficiently to benefit the workers that were left behind by the economic recovery that economists claim began nine years ago, but has been so feeble that it barely merits the name.
In July, the employment ratio, which is the percent of working age Americans that have jobs, rose to 60.49%, the highest since December 2008, and the broad “U-6” unemployment rate fell to 7.50%, which is the lowest seen since May 2001.
The New York Times, which has not been a conspicuous fan of President Trump or his economic policies, noted that:
“The least educated American workers, who took the hardest hit in the Great Recession, were also among the slowest to harvest the gains of the recovery. Now they are a striking symbol of a strong economy.”
The NYT also noted that the unemployment rate for high school dropouts hit 5.1% in July, down from its 2009 peak of 15.6%, and the lowest since the BLS began keeping track of this in 1992.
President Trump’s policies deserve credit for what the NYT calls “a strong economy” because the economic recovery has accelerated in almost every way since he took office.
Let’s compare the jobs numbers for Trump’s first 19 months in office with those of Obama’s last 19 months in the White House:
* Employment Ratio: +0.73 percentage points, more than twice Obama’s +0.35
* Labor Force Participation: +0.22 percentage point vs. Obama’s -0.16
* FTE jobs: +4.1 million vs. +3.3 million under Obama
* Average weekly wages: +$40.55 vs. +$31.21 under Obama
The reason that the labor market is finally tightening is that Trump’s tax and regulatory policies are bringing real GDP (RGDP) growth back to levels that are historically normal for the U.S. Despite the Great Depression, America averaged 3.50% RGDP growth during the 20th century, and Trump declared during the 2016 campaign that he would Make (economic growth in) America Great Again.
RGDP growth under President Obama was dismal. It averaged 1.57% for his 8 years in office, and it slowed to 1.56% during his final year, 2016. Because Obama’s Keynesian economic policies could not possibly be at fault, progressives have had to argue that America was afflicted with “secular stagnation,” and it was doomed to a future of sub-2.00% RGDP growth.
Oops. On July 27, the Bureau of Economic Analysis (BEA) reported that RGDP growth in 2Q2018 was 4.06%. This brought the average RGDP growth rate for Trump’s first 6 quarters in office up to 2.69%, which is vastly better than the 1.48% rate achieved during Obama’s last 6 quarters in the White House.
But wait—there’s more.
On August 3, the Federal Reserve Bank of Atlanta’s “nowcast” of 3Q2018 real GDP (RGDP) growth stood at 4.4%. Expansion at this rate during 3Q2018 would bring RGDP growth for Trump’s first 7 quarters in office up to 2.94%. The comparable number under Obama was 1.74%.
From there, it would take only a 2.50% RGDP growth rate for 4Q2018 to give us the first 3.00% growth year since 2005. It would also give us a year that progressive Keynesian economists and pundits confidently predicted that America would never see again.
The financial markets are signaling that Trump’s economic policies will produce strong, sustained, non-inflationary growth. Trump’s election victory took the financial markets by surprise, and they adjusted dramatically in its wake. Accordingly, to get a read on how the markets compare Trump with Obama (and Hillary Clinton was basically promising to continue Obama’s policies), we need to compare the 21 months since just before the election to the prior 21 months under Obama.
Using month-end numbers, the Dow Jones Industrial Average has gained 6,272.77 points under Trump vs. 977.47 during the prior 21 months under Obama. The interest rate on 10-year Treasuries, which correlates with expected GDP growth, rose 1.12 percentage points under Trump vs. an increase of 0.16 percentage points during the comparable Obama period.
OK, but all of this growth will produce inflation, won’t it?
The financial market don’t think so. The price of gold has declined by $53.60 since the election. Gold prices reflect inflation expectations and fears, and the markets are obviously less concerned with inflation with Trump’s 4.00%+ RGDP growth than they were when Obama was presiding over sub-2.00% growth.
Politicians and pundits on both sides of the aisle have been caterwauling about skyrocketing federal deficits and debt. Every Democrat in Congress voted against President Trump’s tax cuts, claiming that they would “bankrupt the nation.”
In light of this, one might think that it is a bit odd that investors seem happy to lend money for 30 years at 3.09% interest to an entity that everyone agrees is careering toward bankruptcy. Especially when (based upon 30-year TIPS) they are risking losing all of their money (either via inflation or outright default) in return for a meager real interest rate of 0.95%.
It’s possible that the markets have noticed that, during Trump’s first six quarters in office, federal debt as a percent of (trailing four quarters) GDP rose by only 0.30 percentage points, vs. an increase of 4.26 percentage points for the final six quarters under Obama.
Here is my bottom line. Trump’s economic policies are working, and the economy is (finally!) starting to boom. If you are a Republican running for Congress in November, run on economic growth, because Trump is delivering it.