Saturday, October 06, 2018

Perhaps you heard ...

Perhaps you heard the unemployment rate has fallen to 3.7 percent, its lowest level in almost 50 years. Meanwhile, September jobs creation came in at 134,000, far lower than expected. Because of differences in how they are measured and indeed what they measure, the two indicators do not always perfectly track each other month-to-month.

I sliced and diced the job creation performance of Trump and Obama in excruciating detail back in June. It's time for a very quick update. Trump frequently claims he's done something extraordinary with the economy, so it's important that we keep checking.

Starting with his first full month in office, February 2017, we now have 20 months of Trump job creation on the books. Trump's total is 3.8 million jobs created, for an average of 190,200 jobs per month. Obama created 4.2 million jobs over his final 20 months in office, through January 2017. That's an average of 207,550 jobs created per month.

In fact, Obama averaged 207,000 jobs created over his final 60 months—five years—in office.

Here's the latest official monthly jobs data going back a decade:

Source: Bureau of Labor Statistics

From the standpoint of jobs creation, the Trump economy is basically a continuation of the Obama economy. There have now been 96 months of continuous positive job growth. Trump lags Obama by an average of 17,000 jobs per month. But of course it's harder to create jobs as the market tightens. As the very low unemployment rate indicates, the market is indeed tightening.

Which is what you'd expect after 8 years of continuous strong job growth. As for that amazing unemployment rate, it too is just a continuation of a fairly smooth long term decline that began after the peak of the Great Recession in 2009, near the beginning of the Obama presidency. The rate of decline has actually flattened slightly under Trump, as the following graph shows. Again, this is what you'd expect in a tightening job market. But there has been no miraculous Trump effect. None at all.

Click on the graph for a better look.

Source: St. Louis Fed

Economist Dean Baker says the real jobs hero of the past couple of years is the Federal Reserve, especially under former chair Janet Yellen. Many economists and some Fed governors had urged the Fed to begin raising interest rates as soon as the rate dipped below 5 percent, fearing that inflation would rise rapidly as the unemployment rate fell below that level.

Yellen said wait and see. She was right. Inflation remained subdued even as the job market continued to tighten. Thanks to her, a couple of million more persons are working now than might otherwise be. Too bad she wasn't offered a second term. Incidentally, the unemployment rate was around 4.7 percent when Trump took office. The peak was 10 percent in October, 2009.

The remaining pieces of the jobs puzzle are the participation rate and wage growth, which has been subdued for years. Even the recent uptick is barely enough to keep wages increasing at the rate of inflation, although much faster wage growth could soon materialize. It's hard to see how it wouldn't with the very tight job market. But we've been saying that for a while now.

A final note. The median household income has finally rebounded to its pre-recession level, adjusted for inflation. It is statistically indistinguishable from its level in 2007. As the economy remained mired in depression for years (even as the jobs rebound was getting underway), economists (such as Joseph Stiglitz) said it would take a decade to return to normal. And so it did, although we aren't yet sure what the new "normal" will look like. The best guess is that GDP growth will soon decline to a level well below 3 percent, and stay there.

Copyright (C) 2018 James Michael Brennan, All Rights Reserved


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