Slowly Boiled Frog

4 October 2019


Cogito Ergo Non Serviam

September Jobs Report Signals Economic Softness Ahead


The September Non-Farm Payrolls report came out this morning, and the US economy added 136,000 jobs last month. The unemployment rate dipped to 3.5% on a steady participation rate of 63.2%. Wage growth declined slightly to 2.9%. July and August jobs numbers were revised upward for a combined total of 45,000 new jobs over those two months. Manufacturing has clearly entered a recession, and while consumer confidence is holding up, a general slowdown in 2020 is definitely ahead. While it is possible that the economy avoids an actual recession, next year's numbers are likely to be worse than this year's.

The numbers this morning were not terrible. Any month when jobs are created as opposed to lost is a good one. When the unemployment rate falls without a drop in the participation rate, the situation is positive. Wage growth is a good thing; ask someone who got a raise. But like the frog that boils when put in a pot of water where the temperature is slowly raised, the economy is starting to slow down but not so dramatically that anyone will take much notice until it's too late.

The key thing to note is that the job increases are slowing. In 2018, the monthly job growth was 228,000. This year so far, the average is 161,000. GDP growth is decelerating as well. It was 3.1% in first quarter 2019, and 2.0% in second quarter. In both sets of figures, one sees the effects of the massive tax cut passed in 2017 running its course.

The one thing holding up Mr. Trump's approval ratings is the fact that the economy is still moving forward. However, the speed at which it does so is slowing, and that means that some people are going to start moving backwards. Manufacturing is the area where this is most obvious. The Washington Post observed, "September was the worst month for U.S. manufacturing since June 2009, according to a closely watched industry index. And concerns have grown that the manufacturing contraction could spill over into other industries."

There are three policy changes that could help. Another jolt of fiscal stimulus would probably improve matters, but it would balloon the US debt levels. Also, one doubts whethere the bang for the gigabucks would be the same as after the 2017 tax cut. Monetary policy could offer a little support, but the Fed has very few rate cuts to go before the US is back a zero interest rates.

The trade policies that have brought the US into a trade war with China and to the edge of one with the EU could change. Ending the clash of tit-for-tat tariffs would revitalize the economy more effectively than the other two. A great many of America's trading partners are in recession or approaching it. Increasing trade by lower tariffs would not only help America but America's partners as well. In a globalized economy recession is best fought off globally. Of course, that would require the president to become a free trader. That isn't going to happen.

The customary definition of a recession is two consecutive quarters of negative economy growth (six months of shrikage in a row if one wants to be more direct than economists usually are). The US may not reach that level. However when one is used to 2.5% growth and it hits 1.5%, that feels a lot worse than when those used to 0.2% growth see a 0.1% decline. America in summer of 2020 may not be in a recession, but too many it will feel like one.

© Copyright 2019 by The Kensington Review, Jeff Myhre, PhD, Editor. No part of this publication may be reproduced without written consent. Produced using Ubuntu Linux.

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