Friday’s jobs report was the latest sign that the American economy is humming. Does this mean that President Trump is out of the economic woods for 2020? I spoke with business columnist Josh Barro to make sense of the new data.
Ben: You wrote a few days ago about the reasons why recession fears have dissipated over the last year, from a relatively stable (at least by the markets’ metric) political situation to steady monetary policy. How much more evidence does today’s surprisingly excellent jobs report provide that a recession isn’t imminent?
Josh: I would say “very good” rather than excellent, but yes, this is another piece of evidence that the economy remains strong. The headline number this month is somewhat inflated by workers returning from the GM strike, but job gains for the last two months were revised up. This means that, for the year, the pace of job growth is similar to 2016 and 2017. 2018 was stronger, likely due to a temporary boost from the tax cut. But there had been an emerging narrative that job growth was slowing down compared to the pre-tax-cut pace; there’s no longer a reason to think that.
Ben: Wage growth continues to struggle to keep pace with the other positive numbers, with hourly earnings only up 3.1 percent over the last year. Why do you think this disparity is such a regular feature of the economic landscape right now?
Josh: 3.1 percent is not a bad number, but this is the part of the economic cycle where wage growth should be at its strongest, with employers needing to hike wages to compete with each other for scarce workers, so we’d want to see it even higher. The usual explanation you hear for why wages aren’t rising faster is that 3.5 percent unemployment isn’t as low as it sounds. That a lot of workers left the labor force altogether because they couldn’t find work, and that as the job market gets better some of them come back into the labor force. So the reason wage growth can stay modest is the same reason the economy can keep adding about 200,000 jobs a month even though we’re ten years into the recovery.
I would note that wage growth is strongest at the bottom of the income scale. Wages in low-wage industries have been rising at more than 4 percent a year, so that’s actually a trend that’s pushing down inequality, and it’s likely a reason that even people who don’t own stocks have been reporting improved satisfaction with the economic outlook in surveys compared to a few years ago. Here’s a chart on that:
Ben: You don’t hear that point bandied about too much — at least I don’t.
Josh: Yeah. Liberals don’t like to talk about it because it cuts against the claim that the Trump economy is only working for people at the top. I don’t know why conservatives don’t tout it; one possible reason is that state minimum-wage increases are one of the drivers of this effect. (Maybe liberals should say that.) Another possible reason is that the president himself is conflicted about this trend. He likes to brag about job-growth numbers. But wage growth pushes down profit margins and he’s a business owner, as are many of his friends. Still, he’s been pushing for monetary policies that would tend to allow more wage growth. I would think he’d want more credit, even if the Fed has not been reacting exactly to his demands. The minimum-wage thing has also gone underdiscussed. It’s been over a decade since the federal minimum wage was raised, but so many states and municipalities have raised it that there’s been a major effect nationally.
Ben: Many all the way up to $15 an hour.
Josh: Right, but also some more modest increases, including by ballot measure in red states like Arkansas.
Ben: You wrote in your recent piece that in addition to the reasons you listed as to why a recession isn’t in the immediate offing, “President Trump has one big reason to feel better about the economy today than he did a year ago: the clock. Every day that we haven’t entered an economic downturn is one less day that he faces the risk we will do so before he faces reelection.” I know this is hardly an exact science, but how unlikely do you think it is at this point that he’ll be dealing with anything other than a solid economy come November?
Josh: It depends what you mean by “other than solid.” I think a recession before November is now looking very unlikely. It’s always possible. But the economy is still growing around 2 percent. And while there are some remaining worry areas (such as the trade war), none appear very likely to knock a full two points off the growth path. The Fed also continues to show its willingness to react if the economic outlook worsens. As I mentioned, they’re looking for ways to signal their willingness to allow a little more inflation, a shift that would increase their power to push back against economic headwinds.
So if the economy shows real signs of softening, the president might get more rate cuts before the election (though I think the more likely outcome is that those cuts won’t be needed). It is even possible wage growth could pick up before the election, if we are finally, really really at full employment. Wage growth could accelerate even if overall economic growth does not. That’s what should already be happening at this point in the cycle.