Anyone who has followed the monthly jobs numbers for a few years knows that they are volatile and subject to significant revisions from time to time. I've tried to correct for this by stepping back and trying to see the long-term trends and whether they are changing.
As this chart shows, private sector jobs (the ones that really count) have been growing at an annual rate of a bit more than 1% for most of the past 18 months. Over the past decade, private sector jobs have grown at an annualized rate of 1.3%, while real GDP growth has been about 2.3% per year. So what we are seeing today is roughly par for the course; nothing to get excited or worried about. Except that the number of immigrants entering the labor market is in the process of slowing rather dramatically, thanks to Trump's closed borders and aggressive efforts to deport illegals. My back of the envelope calculation says that without any meaningful policy changes, jobs growth is going to slow to somewhat less than 1% a year—possibly to as low as 0.6% a year by the end of this year. This is going to leave us with an economy that struggles to grow 2% a year.
This is not the stuff of booms. For a booming economy we need to see significant reductions in tax and regulatory burdens. Fortunately this is something that Trump is working hard to achieve, so there is hope for a better economy in the years to come.
Growth can still happen, but also contingent on the unneeded tax hike (tariffs) being lifted or at least stabilized. Too much uncertainty for business right now.
ReplyDeleteI really thought the jobs were going to be a bit softer in both April and May due to the uncertainty related to tariffs and what I thought would be less consumer spending and businesses moving into cost control mode throughout the world leading to softer jobs. It seem that this is not happening so I am a bit surprised.
ReplyDeleteLook at the revisions. They are almost always down by a substantial amount. This will end up being a rather soft report after its revised down.
Deletere: "For a booming economy"...you need high real rates of interest, a tight money policy, and an expeditious activation of monetary savings into real investment outlets. Powell has inadvertently made headway on this. The percentage of DDs to TDs has doubled. This reverses secular stagnation.
ReplyDeleteIt's like Richard Werner says, banks don't lend deposits. The corollary is that all bank held savings are lost to both consumption and investment. The way to get a boom is to drive the banks out of the savings business - which doesn't reduce the size of the payment's system.
The restriction on immigration could also motivate private sector employers be more innovative at increasing efficiency. That would lead to a better economy, at least within the US.
ReplyDeleteHow does productivity look?
ReplyDeleteThe jobs numbers may be sluggish due to Trump closing the border. But workers may see better pay and working conditions.
ReplyDeleteThe real problem is housing. American needs to decriminalize new housing production. Property zoning needs to be retired in favor of free markets.
Imagine the construction boom that would be California for the next 20 years if property zoning was wiped out.
Now, even GOP'ers don't want that.
Scott, you haven't published the chart on GDP growth v. trend since October. Does that chart suggest we can have much higher real growth without inflation if M2 growth remains ~6%? Do we really have the probability of a boom, assuming pro-business policies?
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