If you’ve pretty much tuned out political spectacles, you may have missed the president’s State of the Union speech and his latest economic pronouncement: “Jobs are booming, incomes are soaring, poverty is plummeting, crime is falling, confidence is surging, and our country is thriving and highly respected again.”
The president is correct that headline numbers are impressive. In the midst of the most serious viral epidemic in modern memory, the U.S. market is at an all-time high. Headline employment numbers are strong. Wages have risen. According to the Michigan survey, consumer confidence is indeed high.
Employment
The U.S. Bureau of Labor Statistics released new hiring numbers last Friday, the 7th. The economy added 225,000 jobs.[1] That’s a pretty hot report for the middle of winter. We hate to rain on a parade, but it also has been a rather warm winter. Dave Rosenberg notes that construction hiring was triple its seasonally typical rate. Mild weather is a good time to build. Additionally, leisure/hospitality hiring outperformed. Meanwhile, our consumer-driven economy saw retail contract. Manufacturing was down again, the third time in four months. Without the boost from weather, the data may not have looked nearly as encouraging.
It’s popular to claim that manufacturing, which now makes up only 12% of U.S. GDP, is unimportant in our financialized and technophilic economy. That is simply misguided. In Singapore, which boasts GDP per capita of $64,500 (2018), a full 18% higher than the U.S., manufacturing comprises nearly 21% of its economy. Switzerland is a similar story. Fabled for its robust finance and tourist sectors, Switzerland derives 18.5% of its GDP from manufacturing (and has per-capita GDP 52% higher than the U.S.).[2]
Declines in retail and manufacturing employment don’t merely represent ongoing shifts in the distribution of labor in the economy. They likely demonstrate a weakness. That conclusion is borne out by the Household survey. Moreover, the number of U.S. workers forced to take on an additional job swelled by 206,000![3]
Wages
Trump lauds the present increase in wages due to the tight labor market. The market does seem rather tight, but the wage story is more complicated than “rising incomes” indicates. First, while wages have risen significantly during Trump’s term, they only recovered their 2007 level in 2016. For nearly a decade, workers made less than they had since the millennium began. Those lost wages were a significant cause of poor GDP growth since the Great Recession of 2007–09. Consumers didn’t have the purchasing power to fuel the economic engine. Employment estimates from the payroll survey are a count of jobs, while the household survey provides an estimate of the number of employed people.
Second, without minimizing the effects of tight labor and economic vitality in some sectors, it’s important to note that a spate of recent campaigns have succeeded in raising the minimum wage in various states and cities. On Monday the 10th, 29 states had minimum wages above the federal standard. Virginia joined the club just this Tuesday. Some of these changes have merely reflected the going rate for labor in a tight market, but not all. Especially at the municipal level, campaigns that have pushed wages to $15 seem to be exceeding the market rate. Wage growth is wage growth. Trump is not wrong. But it isn’t all from economic vibrancy. Some of it is reflective of deep inequities and market inefficiencies.
“Our Country Is Thriving”
It’s audacious indeed to call the most polarized and partisan political constellation in memory thriving. But even economically, the word is misapplied. Economic growth is always a combination of growth in the labor force and growth in productivity (the efficiency of worker output). Robert Samuelson at the Washington Post writes:
Do the math. From 1950 to 1973, reports the CBO, the labor force and productivity grew at average annual rates of 1.6 percent and 2.4 percent, respectively, resulting in an overall growth rate of 4 percent. Now flash forward: For the next decade, the CBO projects 0.5 percent gains in the labor force and productivity gains of 1.4 percent. That’s almost 2 percent.[4]
The U.S. fertility rate is 1.80 children per woman. In such conditions, any labor-force growth must come from immigration, an increasingly unpopular source among many on the political right. To the extent the current administration stems the flow of immigrants, it will need to see a corresponding growth in productivity.
We have described the unfortunate trend in productivity growth here and here. Samuelson notes most of the same trends we also discussed. First, the addition of women to the workforce has accounted for a huge boost in per-family earnings over recent decades. Given that there isn’t a third cohort of working-age adults to add to payrolls, the gains from that surge can be maintained, but not replicated.
Second, the last two generations have seen massive increases in education, which typically fetches higher wages. For the first time in history, 90% of Americans older than 25 have a high school degree. In 2016, 70% of graduating high school seniors attended college. If education is key to higher wages, those wages should plateau as growth rate in degrees earned falls. Suppose 100% of graduating high school seniors attend college next year. At the end of their education, the economy would likely see a bump from the skills they bring. The next year, however, we would need 100% college matriculation again simply to keep pace. The economy wouldn’t grow faster from these new workers. Educational attainment offers one-time gains, and those increases have been nearly exhausted.
Northwestern University Professor Robert Gordon argues that, on this side of the Industrial Revolution, we’ll see much lower rates of growth in productivity than we did the previous century. Economic growth would then be correspondingly lower. We suspect he is right. Another school of thought expects that new technological innovation—blockchain, artificial intelligence, the data economy—will drive another wave of economic prosperity. But even those prophets of future prosperity worry that economic turmoil rather than tranquility, will be the result.
Andrew Yang, most recently a contender for the Democratic presidential nomination, formed his surprisingly popular campaign around the notion that this new “fourth industrial revolution” will result in even greater wealth inequality as blue-collar workers suffer intense competition, not from outsourcing to low-wage counterparts but from the output of untiring, unpaid robots, courtesy of Silicon Valley technological innovation. That scenario would see productivity soar. The labor force would theoretically grow in size, but its laboring would be replaced by machines. The number of people actually participating in work, menial or meaningful, would deteriorate. Indeed, since 2000 and the first wave of digital technology, it already has.
Donald
Trump is given to hyperbole if not flat-out falsehoods. The State of the Union
address is also not known for being grounded in reality. On Main Street,
though, reality is all that matters. The majority of publicly listed companies
in this country do not make money. That matters. Private debt levels are at
all-time highs. That matters. Median wages have grown only 0.142% annually
since 2000; inflation meanwhile has been 1.99% annually. That matters. Perhaps
our partisanship is actually a sign of the times. Our divisions seem to be the
only things that are truly thriving. And that matters.
[1] This is the number delivered by the Current Employment Statistics survey, which tracks additions to employer payrolls. This metric is maintained by the BLS.
[2] Ha-Joon Chang, Economics: A User’s Guide (Bloomsbury Press, 2014), 192.
[3] This is the number delivered by the Current Population Survey, which tracks the estimate of unemployed people derived from a household survey administered by the BLS.
[4] https://www.washingtonpost.com/opinions/is-economic-growth-limited-to-2-percent/2020/02/09/04c46d58-49f5-11ea-9164-d3154ad8a5cd_story.html