The Economy Revs Up
Wall Street Journal Editorial Board
The Labor Department reported Friday that the U.S. created 228,000 net new jobs in November, in the latest sign that the American economy is growing at a healthier pace. Could it be that “secular stagnation” isn’t inevitable and that better policies make a growth difference?
There’s little doubt now that the economy has reached a higher growth plane over the past nine or so months. Growth in GDP hit 3% in the second and third quarters, and all signs point to another in the fourth quarter. That would mark the first such string of 3% quarters since 2014, after which growth fell back to the 2% range.
The rising growth is touching most industries and parts of the country. Manufacturing is healthy—note to Donald Trump and Commerce Secretary Wilbur Ross —thanks to growth abroad and rising exports. The housing market is doing well overall, and consumer confidence is high.
The best news may be the surge in small business optimism that began with the election and has persisted, as measured by the National Federation of Independent Business. Small business confidence has been depressed compared with the typical economic expansion, but NFIB’s hiring index reached an all-time high in November, and the sentiment is making a difference in the labor market.
The 228,000 new jobs in November isn’t gangbusters but it is healthy considering the growing tightness in the labor market. The jobless rate stayed at 4.1%, as new people entered the labor market, but the economy will need more workers to keep growing. Unemployment hasn’t been this low since it was 3.9% in December 2000, before the dot-com bubble burst.
Some of our friends, including Stanford’s Ed Lazear on these pages Friday, point to the still-low labor participation rate as a sign of labor slack and room to grow. If rapid growth persists, rising wages and more opportunities will pull people off disability and out of their parents’ basements.
That’s plausible, and we hope it’s true because Labor Department statistics show there is little slack in the market for current workers. The jobless rate among college graduates is down to 2.1%, which has to be near full employment and is close to the lowest since before the 2008 recession. Even more striking is the rapid decline in the jobless rate among workers over age 25 without a high school diploma. (See the nearby chart.)
These folks are supposed to be the least employable in our skills-based, information economy. Yet in November the jobless rate for these workers fell to 5.2% from 5.7% in October and 6.5% in September. That is lower than any time since the Bureau of Labor Statistics began tracking this figure in 1992.
Why has the economy improved? Faster growth abroad has helped, and central banks continue to be accommodating by any historical measure. One of the threats to the expansion will be when monetary officials raise rates and pare back their balance sheets, as the Federal Reserve is beginning to do.
But the biggest change has been in U.S. economic policy, notably the Trump Administration’s deregulatory efforts and the boost they have given business confidence. Barack Obama’s economists dismissed regulation as a minor concern, and even called it a boon to growth, but the costs of compliance were real and added to uncertainty. Businesses held back because they didn’t know how or when government might strike next, which contributed to historically low levels of capital investment in this expansion.
That has begun to change, and the main promise of tax reform is to create the incentive to produce an investment surge. The bet is that this will increase the pace of growth, with new investments in labor productivity that will lift wages. Wage gains have been modest so far—2.5% over the past year—but if labor markets stay tight that is bound to improve.
There are risks to this growth scenario other than monetary policy. One is a burst of trade protectionism from the White House, starting with a U.S. withdrawal from Nafta. Another is a labor shortage exacerbated by a decline in immigration that forces companies to hire human capital abroad. The latter two would be self-inflicted wounds that Mr. Trump has every political incentive to avoid.
But for now U.S. economic portents look as good as they have in years. If Congress can get its tax reform over the finish line without watering down its pro-growth elements, “secular stagnation” may go down in history as one more failed progressive diagnosis.
Read more at The Wall Street Journal.
Manufacturing CEO survey shows record high optimism on prospect of tax reform
December 12, 2017
The National Association of Manufacturers said Monday its latest quarterly CEO survey reflects historically high optimism on expectations for the passage of tax reform in Washington.
The trade group said CEO optimism — hitting a high mark in 20 years of the survey — should send a message to legislators that failure to enact the bill would be a blow to American business.
“These incredible numbers demonstrate the absolute urgency of getting tax reform signed into law because manufacturers are saying loudly and clearly that more jobs, better pay and manufacturing growth are on the horizon,” said Jay Timmons, president and CEO of NAM. “This also serves as a warning to lawmakers: Fail to get this done, and American manufacturing workers will suffer the consequences of inaction.”
Each quarter, the NAM surveys 14,000 large and small manufacturers to gain insight into their economic and hiring outlook. Of those who participated in the fourth quarter study, 94.6 percent said they were positive about their own company’s outlook.
Nearly 63 percent said comprehensive business tax reform would encourage their company to increase capital spending, and more than half said they would expand their businesses (57.9 percent).
“The single most important thing that we need to see out of tax reform is permanent, more competitive tax rates,” said Austin Ramirez, president and CEO of HUSCO International, a Wisconsin-based hydraulic and electro-hydraulic component manufacturer. “I compete against competitors in Asia and Europe who are operating in a different paradigm with lower tax rates, and the high rates in the U.S. make us less competitive.”
Almost 54 percent of CEOs in the survey said they would hire more workers, and nearly half (48.8 percent) said they would increase employee wages and benefits.
“Tax reform will enable us to provide our employees with better salaries, wages and benefits which will have a real impact to improve the standard of living for them and their families,” said Bruce Pulkkinen, senior advisor and former president of the third generation, family-owned architectural woodworking company, Windham Millworks in Maine. “We can’t accept the status quo anymore.”
NAM CEO Timmons anticipates tax reform would increase the amount of available manufacturing jobs from today’s 350,000 to 2 million jobs by 2025.
“If we get it right, we’ll grow this economy. The president calls it ‘rocket fuel,’ I agree with that. Couple that with regulatory reform reducing the burdens on manufacturers who are simply trying to do the right thing and make ends meet and hire new people,” Timmons said on CNBC’s “Power Lunch.” “I think there’s no end in sight to how we can grow this economy.”
Commerce Secretary Wilbur Ross told CNBC this optimism is not unique to the manufacturing sector.
“President Trump’s policies of deregulation, free and fair trade and now tax cuts have created an environment where businesses want to invest, grow and create jobs here at home,” Ross said.
Read more at CNBC.