Political Economy Of The Jobs Report

The BLS out with the employment report this morning,

Total nonfarm payroll employment increased by 201,000 in August, and the unemployment rate was unchanged at 3.9 percent, the U.S. Bureau of Labor Statistics reported today. Job gains occurred in professional and business services, health care, wholesale trade, transportation and warehousing, and mining.  – BLS

Historically average employment growth coupled with an acceleration in average hourly earnings.

Nevertheless, job growth was impressive given the tightening constraints on labor supply.  That is starting to show up in higher wage growth.

Ideally, wages grow based on productivity gains and not supply shortages, which are inflationary in nature.  The real average hourly earnings growth was pretty much about flat, although their relative wages in some sectors are accelerating.  We expect inflation to accelerate x/ a major financial shock.

Political Implications

We have been tracking the Trump labor market relative to the Obama labor market for several months now.   Though the economy is now growing at almost double the rate than during President Obama’s last six quarters in office, the gains are not being equitably distributed to the labor.   There labor supply pool is also shrinking.

The char above and following table illustrate our point.

During the last 19 months of the Obama administration, the monthly change in nonfarm payrolls averaged 208k versus 185k during the first 19 payroll reports of the Trump Administration.  There are three more employment reports before midterms, and the monthly jobs will have to average 298k in order for the Trump jobs market to catch the Obama job increases, and just that ain’t gonna happen folks.

The labor market is supply constrained and continued strong economic growth is going to translate into wage inflation, which will be passed on to general price increases.

The Trump administration deserves kudos for reviving manufacturing employment, but, surprisingly,  wage growth in that sector is much lower under Trump.   We suspect this has to do with relatively greater slack in the manufacturing labor market.

The overall nominal average hourly earnings growth rate is running about 46 bps higher under Trump, but relative purchasing power is offset by higher inflation.  Real wages are higher under Obama than Trump.

Nevertheless, we think the economic impact on the midterm vote is asymmetric from now until the election.  That is only negative shocks will impact the vote on the margin.