The unemployment rate dropped to 3.7%, and the Canadians agreed to join a key trade deal. That’s a good week, economically.
The latest jobs report showed that employers created 134,000 new jobs in September, which was lower than expected, but probably because of temporary factors related to Hurricane Florence. Overall, during the last year, employment growth has averaged a robust 195,000 new jobs per month.
Most other signals in the labor market are flashing green. Wage growth has ticked up to 2.8% per year, and 3.8% during the last three months, on an annualized basis. Wage growth has been a missing ingredient of the recovery that’s now nine years old—and finally seems to be materializing.
Growth in manufacturing employment remained steady, offsetting some worries about a possible slowdown due to President Trump’s trade war with China. Many economists think the next jobs report, due out four days before the midterm elections, will show a post-Florence rebound in job creation, perhaps above the 200,000 level.
Trump also settled his trade grievances with Canada this week, agreeing to terms of a new U.S.-Mexico-Canada Agreement that will replace the North American Free Trade Agreement. The changes aren’t dramatic, with Trump resorting to a kind of rebranding exercise to make small changes seem momentous. Still, an end to Trump’s threats to tear up NAFTA is a relief for investors, who no longer need contingency plans for the disintegration of North American supply chains.
For these reasons, this week’s Trump-o-meter reads BIGLY, our second-highest grade:
If you want to worry, there are still plenty of warning signs. Stocks have slid lately as interest rates have risen, for a variety of reasons. Higher rates make bonds a better alternative to stocks. They also mean borrowing costs for businesses and consumers are going higher, which could limit future spending and growth. Rising rates may also signal a belief that the Federal Reserve will be more aggressive than expected at raising rates, which would generally dampen economic activity.
Meanwhile, trade data shows exports shrinking and imports growing, largely on account of President Trump’s trade war with China and the relative strength of the dollar. And some forecasters think the economy has peaked. “The current strength of the economy won’t be sustained,” Capital Economics wrote in an Oct. 5 research note. “As the boost from fiscal stimulus fades and rising borrowing costs start to weigh more heavily on rate-sensitive activity, an economic slowdown next year will force the Fed to end the current tightening cycle sooner than officials anticipate.”
That’s months away, of course, and the economy may sizzle for the rest of 2018, including the weeks leading up to the Nov. 6 midterm elections. The economy is giving Trump momentum at a key moment. The question is whether voters will notice.
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Rick Newman is the author of four books, including “Rebounders: How Winners Pivot from Setback to Success.” Follow him on Twitter: @rickjnewman