Job market responding favorably to President Trump

In the second quarter of this year, growth was running at a 2.6% rate.  Trump wants to increase that number to 4% annually.


WASHINGTON, August 4, 2017 — On August 4, the Labor Department announced that the US economy added 209,000 jobs in July. They also revised the June jobs number upward, from 222,000 to 231,000. While President Trump has been unable to get Congress to pass major job creating legislation, the actions he has taken seem to be promoting employer confidence.

Employers are hiring because they believe that Trump will stimulate economic growth.

Trump tried to get Congress to at least partially repeal the job killing parts of the Affordable Care Act. Even the “skinny” option, which just removed the employer mandate, could not be passed by the Senate.

The employer mandate requires businesses with more than 50 employees to provide them health insurance or pay a $3,000 per worker fine. The result has been reluctance by small businesses to hire new workers.

Trump has rolled back many other regulations that add costs to business, hence slow expansion. Cutting business costs leaves more money to hire new workers.

The resulting increase in demand for workers has also had positive effects on wages.  For the last 12 months, average wages have increased by 2.5 percent. The Federal Reserve has said they would like to see that increase in the 3.5 percent range. In July, wages increased by 0.3 percent, which would be a 3.6 percent annual rate.

The unemployment rate fell to 4.3 percent. That’s the lowest rate since 2001. More importantly, the U6 unemployment rate fell to 8.6 percent. This is the lowest since 2008, just prior to the great recession. The U6 rate measures the unemployed plus discouraged workers and people working part-time who would rather work full time. Last August the U6 rate was 10 percent.

In addition, the labor force participation rate rose to 62.9 percent. This measures the percent of the adult population who are in the labor force, meaning they are working or actively seeking work. Since the economy is at full employment, it is important that more adults enter the labor market. Historically this number is in the 67 percent range.

Trump has pledged to increase economic growth. Since 2006, economic growth has averaged about 2 percent annually. In the second quarter of this year, growth was running at 2.6 percent. Trump wants to raise that to 4 percent annually.

A 4 percent annual growth rate would sharply increase the demand for labor, which would create millions of new jobs and significantly increase wages. Trump knows he must continue to reduce burdensome and unneeded regulations while changing the federal income tax code to be more growth oriented and less punishing for successful people.

While almost everyone seems to agree that tax reform is needed, Trump, like Presidents Kennedy, Johnson and Reagan, knows that tax rates must be lowered for all Americans. His opposition refuses to cut taxes for the most successful people and successful small businesses owners.

“Tax reform cannot be a cover story for delivering tax cuts to the wealthiest. We will not support any tax reform plan that includes tax cuts for the top one percent,” Senate Democrats wrote in a letter to the president and top Republican leaders.

While that position may be popular for the Democratic Party’s base, it is counter-productive, will tend to slow growth, and will increase the burden on people who are already over-taxed. In fact, all of the income tax increases in the last 10 years have fallen on the top income earners.

Last year, the top 1 percent paid almost 50 percent of personal income tax revenue collected by the federal government. That’s up from 40 percent in 2012. Since there is a low input from labor (the labor force participation rate remains historically low) the economy will need a strong input from capital in order to grow.

More than 1 million jobs have been added to the economy in the six months since Trump took office. If he can get his agenda through Congress, double or triple that number could be added in a six-month period.

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