Posts Tagged ‘America’s economy’

America’s Economy Isn’t Overheating

October 10, 2018

It’s still recovering. The labor market has more room to expand before achieving full employment.


America’s Economy Isn’t Overheating
Illustration: Chad Crowe

The U.S. unemployment rate declined to 3.7%, a rate unseen in almost half a century, the Bureau of Labor Statistics reported Friday. Given the booming labor market, the Federal Reserve has reason to worry that the economy may be overheating. Although we are getting close to the peak of the business cycle, three labor-market indicators suggest we’re not there yet: Job growth is too high, wage growth is too low, and the employment rate is still slightly below the level consistent with full employment.

First, consider the rate of job creation. Jobs must be created every month to keep up with population growth. Throughout a business cycle, labor economists can determine whether the number of new jobs is sufficient to keep pace with the added population using the employment-to-population ratio. The U.S. EPOP currently stands at 60.4%. It’s always well below 100% because some people are retired, at home or in school. Population growth over the past year has averaged 227,000 a month, so the U.S. economy must create 137,000 jobs monthly—60.4% of the population change—to keep up.

September saw 134,000 new jobs created—almost exactly the full-employment number. But the three-month average is 190,000 jobs created a month. (The three-month average is more accurate because of month-to-month volatility; monthly numbers have an average error of about 75,000.) Because 190,000 significantly exceeds the 137,000 threshold, the U.S. labor market is creating jobs at a rate faster than required to absorb the added population.

This suggests the U.S. isn’t yet at full employment. When the economy is at full employment, job creation is just large enough to keep up with population growth, neither increasing nor decreasing unemployment rates or EPOP. When the economy is recovering, job growth exceeds population growth, which makes up for jobs lost during a recession. The current rate of job creation points to a labor market still in the recovery phase.

Another clue that full-employment hasn’t been achieved is that the EPOP remains below its full-employment level. The prerecession EPOP peak of 63.4% will not likely be reached because the population is aging and retirees depress the EPOP’s natural level. But a peak rate that accounts for demographic changes is closer to 61%, according to the Council of Economic Advisers and a National Bureau of Economic Research report. That’s still half a percentage point above where the U.S. is now. More evidence that the economy isn’t at peak employment is that the employment rate of 25- to 34-year-olds, depressed throughout the economic recovery, is now growing. It has risen by a full percentage point since January, suggesting there are still people to pull back into the workforce.

Finally, the rate of wage growth indicates that the labor market isn’t overheated. When the economy runs out of workers, labor demand drives increased wages rather than employment as employers compete with each other for the scarce labor. Absent labor-market slack, wages tend to grow at rates above those consistent with target inflation and productivity increases. Wage growth at rates consistent with productivity growth isn’t inflationary, since additional output from increased productivity reduces upward pressure on prices. U.S. productivity growth has averaged 1.3% over the past four quarters. Add the Fed’s 2% target inflation figure to get 3.3%. This exceeds the 2.8% actual rate of wage growth over the past 12 months. If the economy were overheating, wages would be growing at a faster rate.

Despite the low unemployment rate of 3.7%, the U.S. labor market has some room to expand before it hits full employment. That’s good news: The Fed need not worry that the tight labor market is indicative of an overheated economy—yet.

Mr. Lazear, who was chairman of the President’s Council of Economic Advisers from 2006-09, is a professor at Stanford University’s Graduate School of Business and a Hoover Institution fellow.

Appeared in the October 10, 2018, print edition.


The U.S. economy is back in the fast lane — But Democrats want to undo it all

June 22, 2018

Six Months After Tax Reform, Something Big Is Happening

A Honda production line in Marysville, Ohio, Dec. 21, 2017.
A Honda production line in Marysville, Ohio, Dec. 21, 2017. PHOTO: TY WRIGHT/BLOOMBERG NEWS


Six months ago, Republicans in Congress joined with President Trump to redesign America’s tax code and enact sweeping tax cuts. We were determined to let families and local businesses keep more of what they earn. The new tax code was built to help American companies and workers compete and win anywhere in the world.

Now something big is happening to America’s economy. Since January, more than one million jobs have been created. This has brought claims for unemployment benefits to their lowest level since 1969, and there are now actually more job openings than people looking for work. The U.S. has gone from a nation asking “Where are the jobs?” to one that asks “Where are more workers?”

While this economic turnaround has come as a shock to most Democrats in Washington, it’s no surprise to millions of working families across America. They were overtaxed and overregulated for far too long, and the result was a decade of slow growth.

In only six months, the economy has been reinvigorated—and the best is yet to come. That’s because the new tax code leapfrogs America’s competitors abroad. The U.S. is now at the head of the pack—one of the best places on the planet to find that next job, to build that new manufacturing plant, or to set up company headquarters.

As a result, businesses of all sizes are now investing in American workers and communities. They are bringing back their dollars from overseas and investing at home again. It’s no coincidence that small-business optimism has hit its highest reported level in 35 years.

There is a new hope and a new optimism that wasn’t here before. To call it a sudden change from the sluggish Obama-era economy would be an understatement. For a decade, it was like America’s economy was going through a 25 mph zone. Now that the high taxes and uncompetitive regulations are gone, we’re on the open highway again.

In my home state of Texas, families and business owners tell me that they’re hopeful about their economic outlook for the first time since the Great Recession. A growing economy means real change for millions, and it’s uplifting to hear from so many people who are excited about their futures again. A Gallup poll out this week found that satisfaction with the direction the U.S. is heading has reached a 12-year high. This simply wouldn’t have happened without meaningful tax reform.

The scary thing is that Democrats want to take all of this progress away. They think Washington should keep more of families’ hard-earned money. Critics like House Minority Leader Nancy Pelosi continue to deny that tax reform has had any positive effects, and they have actually pledged to raise taxes. Clearly, Democrats are interested in seeing only doom and gloom.

Meantime, Republicans are finding innovative ways to keep improving the tax code to ensure it will remain competitive and pro-growth for Main Street businesses. We’re going to change the culture of Washington so the U.S. doesn’t find itself in the same situation we faced last year, with a tax code that was an anchor dragging down the economy.

Given the choice between keeping taxes high and allowing families to keep more of their money, Republicans chose—and continue to choose—the American people. Empowering families to run their own lives is at the heart of the American Dream. It’s the key to our nation’s economic success, and it’s the reason that, six months into tax reform, Americans are more hopeful about their future.

Mr. Brady, a Texas Republican, is chairman of the House Ways and Means Committee.

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Donald Trump’s Asia trip shows that he is being played

November 14, 2017

By Will Gore
The Independent

The Chinese have rolled out the red carpet and thus avoided both tricky questions of the sort usually asked by Western leaders and any sort of confrontation over trade

Such is the paradoxical nature of Donald Trump’s Presidency that it should perhaps have come as no surprise that the man who swept to power on the promise of putting “America First” should undertake a lengthier tour of Asia than any of his three most recent predecessors.

Perhaps he decided that it is more pleasant to be feted as a foreign dignitary than hated as a divisive head of state. Certainly he enjoyed many warm words of welcome from those he visited during his trip – and he repaid the compliments by the bucketload. Yet it remains unclear whether Trump actually achieved a great deal during his 11 days away.

At the outset, he was said to have three objectives, according to General HR McMaster, the US National Security Adviser. First was the promotion of democratic freedom and openness; second was to press for ‘fair’ trade to boost America’s prosperity; third was to deal with North Korea.

In relation to the first aim, it might have been thought that the President would raise concerns over human rights abuses by China, or the large-scale killing of drug pushers in the Philippines, or the lack of media freedom in Vietnam. When it came to it, though, he evidently felt it was a little impertinent to be so rude. He is, after all, always wary of causing offence.

As for the second, he has regularly railed against Chinese trade policies, which he argues amount to an assault on America’s economy. Yet when he was actually in Beijing, he simply told President Xi what a “special man” he was (Xi, not Trump, though he probably feels the same about himself).

 Image result for Protesters burn Donald Trump effigy in the Philippines, photos
Protesters burn Donald Trump effigy in the Philippines

When it came to North Korea, Trump’s attempts to rally a co-ordinated regional response were undermined by his inability to resist a childish Twitter spat with Kim Jong-un.

Of course, Trump can point to a few macho statements – mostly made about China when he wasn’t in the country – which might convince his fans at home that he’s still fighting the good fight on behalf of US workers. But the evidence that he has come anywhere near achieving something concrete in the last week and a half is slim to say the least.

What’s more, he also gave a good impression of furthering his cosy relationship with Vladimir Putin, infuriating America’s intelligence community by explaining that he’d – yet again – asked the Russian President whether he had interfered in the US election and had been reassured by his answer in the negative. Not only that, complained Trump, but poor old Vlad felt insulted by the constant impugning of his reputation by suggestions to the contrary.

As ever with Trump, it is hard to know whether his apparent missteps are intentional – an extension simply of his dismissal of the US establishment and the way things have been done by his predecessors – or whether he is acting on the hoof, pulling punches when flattered and throwing them when riled.

Increasingly however it feels as if Trump – the great entertainer-President – is being played. The Chinese roll out the red carpet and thus avoid both tricky questions of the sort usually asked by Western leaders and any sort of confrontation over trade. Putin, meanwhile, appeals to Trump’s own inflated notion of ego by complaining that claims of Russian meddling in America’s democratic process amount to a personal slight. Trump responds by defending his fellow strongman leader and attacking the conclusions of his own intelligence agencies.

In the South Korean leg of his tour, Trump gloried in being introduced to the National Assembly as the “leader of the world”. But the truth is almost the diametric opposite: Trump is being led, quite often in ways that appear at odds with American national interests, which is a remarkable state of affairs.

The counter-argument deployed by the President is that America’s foreign policy in many arenas has been a failure over many years and his approach will, at some stage, pay dividends. Yet, such an argument pre-supposes that different policies in the past – towards Chinese trade for instance, or Russian diplomacy, or the Middle East – would have had alternative outcomes. It also relies on Trump’s bluster turning into something demonstrable. That is a dangerous game indeed.

But maybe that is the central problem – that to Trump, the Presidency is simply a game, in which beating losers and vying for personal glory are the key aspects. Worse still, while Trump thinks it’s a game for single players, Russia, China and others understand that it’s all about teams. And in the last few days they have benefitted from a series of Trump own goals. 

Much more of this and America will find that it is very far from being first in the modern world order.

U.S. fails to reassure Europe, Japan over ‘Trumponomics’

May 14, 2017


Sat May 13, 2017 | 2:23pm EDT

By David Lawder and William Schomberg | BARI, ITALY

The United States said on Saturday the world’s other rich economies were getting used to the policy plans of President Donald Trump, but Europe and Japan showed they remained worried about Washington’s shift.

Officials from the Group of Seven nations met in southern Italy hoping to hear more about Trump’s plans which they fear will revive protectionism and set back the global approach to issues such as banking reform and climate change.

U.S. Treasury Secretary Steven Mnuchin said the United States reserved the right to be protectionist if it thought trade was not free or fair.

“We do not want to be protectionist but we reserve our right to be protectionist to the extent that we believe trade is not free and fair… Our approach is for more balanced trade, and people have heard that,” Mnuchin told reporters at the end of the two-day meeting.

U.S. Secretary of the Treasury Steven Mnuchin attends a news conference during a G7 for Financial ministers, in the southern Italian city of Bari, Italy May 13, 2017. REUTERS/Alessandro Bianchi

“And as I say, people are more comfortable today, now that they’ve had the opportunity to spend time with me and listen to the president and hear our economic message.”

Other ministers from the G7 countries made it clear they did not share his view.

“All the six others … said explicitly, and sometimes very directly, to the representatives of the U.S. administration that it is absolutely necessary to continue with the same spirit of international cooperation,” French Finance Minister Michel Sapin told reporters.

Bank of France Governor Francois Villeroy de Galhau said there was a “light breeze” of optimism within the G7 about the recovering global economy after years of sluggish growth following the financial crisis that began nearly a decade ago.

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But he said the continued uncertainty about the direction of U.S. policy represented a risk, echoing comments made on Friday by Japanese Finance Minister Taro Aso.

“We must not backpedal on free trade as it has contributed to economic prosperity,” Aso said.

European G7 officials complain that no-one knows what the United States understands by “fair trade” and that the only way to establish fairness was by sticking to the rules of the World Trade Organization – a multilateral framework.

They also say the U.S. demand to balance trade bilaterally was not economically sound, because trade deficits and surpluses could only be analyzed in a global context.

A senior Japanese finance ministry official said on Saturday uncertainties remained over how quickly the U.S. Federal Reserve would raise interest rates, but the biggest question mark was over possible U.S. tax cuts that could fire up an already recovering U.S. economy.

Trump has proposed slashing the U.S. corporate income tax rate and offer multinational businesses a steep tax break on overseas profits brought back home.

He dropped, however, a controversial proposal of a “border-adjustment” tax on imports as a way to offset revenue losses resulting from tax cuts.

The tax reform plans were also questioned by some European officials. “I am not so sure that with an economy already at full employment and working at full speed a fiscal stimulus would add a lot,” European Commissioner for Economic and Financial Affairs Pierre Moscovici told reporters.

“(But) we avoided some discussions which would have been more damaging, like the border adjustment tax, which is no longer on the table at this moment,” he said.

(Writing by Jan Strupczewski)



Donald Trump’s Ability To “Make America Great Again” In Serious Doubt

May 13, 2017

The impulsiveness and shallowness of America’s president threaten the economy as well as the rule of law

The Economist Print edition | Leaders
May 13th 2017
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DONALD TRUMP rules over Washington as if he were a king and the White House his court. His displays of dominance, his need to be the centre of attention and his impetuousness have a whiff of Henry VIII about them.
Fortified by his belief that his extraordinary route to power is proof of the collective mediocrity of Congress, the bureaucracy and the media, he attacks any person and any idea standing in his way.Just how much trouble that can cause was on sensational display this week, with his sacking of James Comey—only the second director of the FBI to have been kicked out.
Mr Comey has made mistakes and Mr Trump was within his rights. But the president has succeeded only in drawing attention to questions about his links to Russia and his contempt for the norms designed to hold would-be kings in check.

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Just as dangerous, and no less important to ordinary Americans, however, is Mr Trump’s plan for the economy. It treats orthodoxy, accuracy and consistency as if they were simply to be negotiated away in a series of earth-shattering deals. Although Trumponomics could stoke a mini-boom, it, too, poses dangers to America and the world.

Trumponomics 101

In an interview with this newspaper, the president gave his most extensive description yet of what he wants for the economy (see article). His target is to ensure that more Americans have well-paid jobs by raising the growth rate. His advisers talk of 3% GDP growth—a full percentage point higher than what most economists believe is today’s sustainable pace.

In Mr Trump’s mind the most important path to better jobs and faster growth is through fairer trade deals. Though he claims he is a free-trader, provided the rules are fair, his outlook is squarely that of an economic nationalist.
Trade is fair when trade flows are balanced. Firms should be rewarded for investing at home and punished for investing abroad.The second and third strands of Trumponomics, tax cuts and deregulation, will encourage that domestic investment.
Lower taxes and fewer rules will fire up entrepreneurs, leading to faster growth and better jobs. This is standard supply-side economics, but to see Trumponomics as a rehash of Republican orthodoxy is a mistake—and not only because its economic nationalism is a departure for a party that has championed free trade.
The real difference is that Trumponomics (unlike, say, Reaganomics) is not an economic doctrine at all. It is best seen as a set of proposals put together by businessmen courtiers for their king. Mr Trump has listened to scores of executives, but there are barely any economists in the White House. His approach to the economy is born of a mindset where deals have winners and losers and where canny negotiators confound abstract principles. Call it boardroom capitalism.


That Trumponomics is a business wishlist helps explain why critics on the left have laid into its poor distributional consequences, fiscal indiscipline and potential cronyism. And it makes clear why businessmen and investors have been enthusiastic, seeing it as a shot in the arm for those who take risks and seek profits. Stockmarkets are close to record highs and indices of business confidence have soared.


In the short term that confidence could prove self-fulfilling. America can bully Canada and Mexico into renegotiating NAFTA. For all their sermons about fiscal prudence, Republicans in Congress are unlikely to deny Mr Trump a tax cut. Stimulus and rule-slashing may lead to faster growth. And with inflation still quiescent, the Federal Reserve might not choke that growth with sharply higher interest rates.


Unleashing pent-up energy would be welcome, but Mr Trump’s agenda comes with two dangers. The economic assumptions implicit in it are internally inconsistent. And they are based on a picture of America’s economy that is decades out of date.


Contrary to the Trump team’s assertions, there is little evidence that either the global trading system or individual trade deals have been systematically biased against America (see article). Instead, America’s trade deficit—Mr Trump’s main gauge of the unfairness of trade deals—is better understood as the gap between how much Americans save and how much they invest (see article). The fine print of trade deals is all but irrelevant.


Textbooks predict that Mr Trump’s plans to boost domestic investment will probably lead to larger trade deficits, as it did in the Reagan boom of the 1980s. If so, Mr Trump will either need to abandon his measure of fair trade or, more damagingly, try to curb deficits by using protectionist tariffs that will hurt growth and sow mistrust around the world.

A deeper problem is that Trumponomics draws on a blinkered view of America’s economy. Mr Trump and his advisers are obsessed with the effect of trade on manufacturing jobs, even though manufacturing employs only 8.5% of America’s workers and accounts for only 12% of GDP.
Service industries barely seem to register. This blinds Trumponomics to today’s biggest economic worry: the turbulence being created by new technologies.
Yet technology, not trade, is ravaging American retailing, an industry that employs more people than manufacturing (see article). And economic nationalism will speed automation: firms unable to outsource jobs to Mexico will stay competitive by investing in machines at home. Productivity and profits may rise, but this may not help the less-skilled factory workers who Mr Trump claims are his priority.

The bite behind the bark

Trumponomics is a poor recipe for long-term prosperity. America will end up more indebted and more unequal. It will neglect the real issues, such as how to retrain hardworking people whose skills are becoming redundant. Worse, when the contradictions become apparent, Mr Trump’s economic nationalism may become fiercer, leading to backlashes in other countries—further stoking anger in America. Even if it produces a short-lived burst of growth, Trumponomics offers no lasting remedy for America’s economic ills. It may yet pave the way for something worse.


A complete transcript of The Economist’s interview with Mr Trump is available here:


This article appeared in the Leaders section of the print edition under the headline “Courting trouble”