The job report for April has just been released. Contrary to every forecast, the actual number of jobs created far exceeded expectations and shows that the Trump expansion is gaining momentum.
In April, the U.S. economy added 263,000 jobs. The unemployment rate dropped to 3.6% which is the lowest rate in nearly 50 years.
This likely shows that not only is the economy growing at more than a 3% rate, but the growth rate could accelerate this year. President Trump’s economic policies continue to reverse the growth-stifling policies of the prior administration.
Moreover, the unemployment rate fell for almost every demographic except for teenagers. While the unemployment rate for all adults is 3.3%, the unemployment rate for teenagers is 13%. The high rate for teenagers is mostly due to a number of states raising the minimum wage. In many cases, the minimum wage has increased to $15 per hour.
Since the value of an unskilled worker is usually much less than $15 per hour, the number of jobs available to unskilled teenagers has been reduced. At the same time, the $15 wage rate is attracting more teenagers to enter the workforce rather than seek additional education or skills. More workers seeking jobs coupled with fewer jobs available leads to higher unemployment.
Is a recession coming anytime soon?
Many economists argue that it has been eleven years since the last recession started. Historically, business cycle behavior indicates that the economy experiences a recession once every seven to ten years. Indeed there was a recession in 1981, another in 1991, another in 2001 and the last recession started in 2008.
However, usually, a recession lasts less than one year. Then the economy moves to the recovery stage which typically lasts about a year or two. Then the economy enters expansion when annual economic growth is the highest. The expansion usually lasts four to six years. During the current business cycle, the duration of the recovery stage was much longer.
The recovery started in mid-2009. The administration should have set economic growth as the top policy priority. Instead, the Obama administration concentrated on curing perceived social injustices. The result was that the economy never left the recovery stage. Annual economic growth averaged about 2% until 2017.
When Trump became president he set economic growth as his top policy priority. After eliminated hundreds of growth-stifling regulations imposed by Obama, he then convinced Congress to reduce taxes for all Americans. Finally, in 2018 the economy entered expansion.
Since the expansion just started last year and since expansions usually last for four to five years, we are probably years away from a recession.
The tax cut was not a “sugar high.”
Some very prominent, although seemingly biased, economists say that the increase in economic growth from the tax cut is temporary and will be short lived. That appears to be the wrong assessment. The tax cut was not a one-time cut, but rather a long term cut designed to increased demand in the economy while also providing new capital so business can increase supply.
The lower tax rates for all income earners and all corporations increased growth in 2018 to nearly 3% and would likely have exceeded 3% if the Federal Reserve had not raised interest rates four times. In 2019, the first quarter grew at a 3.2% rate. As the effects of the tax cut ripple through the economy, annual economic growth will likely increase beyond 3%.
No inflation in sight.
Inflation is running at less than a 2% annual rate. There is little concern that inflation will increase, even with wage increases exceeding 3%. That’s because productivity was measured at 3.6% in the first quarter of this year. Because the tax cut created new capital, business investment increases have fuel productivity increases.
As long as productivity equals or exceeds wage increases there is absolutely no upward pressure on labor cost and no increase in inflation.
The recent good jobs report shows that Trump’s economic policies are working. The economy is growing, wages are increasing, inflation remains low, new opportunities are being created for all Americans, underemployed workers are finding better jobs and discouraged workers are returning to the labor market.
Now, who could possibly object to that?