President Trump is proud of the 3.9% unemployment rate, the lowest since 2000. But it’s not as great as it sounds.
Employers added 164,000 jobs in April, which was lower than forecasts but still okay. Employers have created an average of 200,000 new jobs each month so far in 2018, which is a strong pace of job growth. But the unemployment rate, which fell from 4.1% to 3.9%, is a puzzlement. There were fewer people looking for jobs in April, which means fewer people counted as unemployed. When unemployment falls because people get jobs, that’s good. But when unemployment falls because people give up looking for jobs, it’s not so good.
For that reason, our weekly Trumpometer says: MEDIOCRE.
Economists struggle to explain two oddities in the current labor market. The first is the relatively low portion of working-age Americans who have a job or are looking for one. The so-called labor-force participation rate is 62.8%, a level it has generally been stuck at since 2014. The peak was 67.3% in 2000. So while the unemployment rate is back to the low levels of 2000, the portion of Americans working or looking for work is considerably lower.
An aging labor force might explain part of the problem, since workers aged 55 to 64 — a bracket that is swelling, as the baby boomers age — are less likely to work than younger folks. The opioid epidemic might keep some people who would otherwise have a job from working. Recent research from the Conference Board suggests more people consider themselves disabled these days, a third possible explanation for the low participation rate.
The other oddity is weak wage growth, with wages rising just 2.6% during the last 12 months. Ordinarily, employers hike pay as unemployment drops and workers become scarce. There are 6.5 million unfilled jobs in America, and there’s plenty of anecdotal evidence that a lot of employers can’t find workers. But if they’re paying more to get the people they need, it’s not showing up in the data.
These two factors—weak wage growth and low worker participation—are a drag on economic growth, and they seem out of sync with an unemployment rate that’s historically low. Trump’s main economic policy is tax cuts, which are supposed to leave workers and businesses with more after-tax income to spend and invest. But it’s not clear tax cuts will do anything to pull more workers into the labor force, or boost basic pay.
The other important Trumponomics news this week was no news on a trade breakthrough with China. Trump, of course, has demanded that China open its market to more American-made products, and he’s in the process of enacting tariffs on Chinese imports as a punitive measure if Chinese doesn’t give. Trump sent top aides, including his Commerce and Treasury secretaries, to China this week to negotiate, and they wrapped up two days of talks with no news at all.
Trade fears are suppressing stock prices and casting clouds on an economic outlook that’s otherwise bright. China has stopped buying American soybeans, a clear indication of how China can retaliate against U.S. tariffs. Farmers are squawking, as they should be, while Trump’s Commerce Secretary, Wilbur Ross, explains that Americans need to “absorb a little pain” in order to get a better trade arrangement with China. Pain, however, was not a Trump campaign promise.
Rick Newman is the author of four books, including Rebounders: How Winners Pivot from Setback to Success. Follow him on Twitter: @rickjnewman