Strong Unemployment Report Guarantees March Rate Hike

This morning’s unemployment report was another strong, solid report, with 235,000 new jobs being created and the unemployment rate ticked down to 4.7%. The consensus view was for 195,000 new jobs so this report exceeded expectations. In addition, the normal revision for the prior two months showed an increase of another 9,000 jobs. The average hourly earnings moved up by another 6 cents and the labor participation rate increased to 63% and the 25-54 participation rate came in up at 81.7%.

The increase in hourly earnings is especially heartening, following the trend for the about the past year. Workers are finally starting to see their paychecks increase, although that increase is still only just above the rate of inflation. Take a look at his chart from the Economic Policy Institute on the current state of American wages:

Last year, for the first time since the turn of the century, wage growth for the bottom 30% actually grew faster than that of the top 20%, with workers in the 20th percentile seeing their wages rise by over 6%. Some of this wage growth is driven by the generally improving economy but some of it is also driven by the Fight for $15 and the Obama overtime policies that were supposed to kick in at the end of last year but were blocked by a court in Texas and not taken up on appeal by the Trump administration. None of that wage growth had anything to do with Donald Trump.

Needless to say, wage growth at the bottom like this is a red flag for the Federal Reserve. Chairman Yellen and even some of the inflation doves have already indicated that we can expect an interest rate hike when the FOMC meets next week. This employment report and the rise in hourly wages will do nothing to stop that hike and will probably lead the Fed to increase rates at an even faster pace than they had anticipated. This despite the fact that inflation is just barely at their targeted 2% level and no indication it is rising at an unusually fast pace.

Trump will, of course, as all Presidents do, take credit for the improved economy. And, if the Fed doesn’t choke off this recovery, his Presidency may well get a boost from the improved economic situation and we will see his popularity rise.

I have seen this movie before for virtually my entire life. It is a deadly cycle that the country just can’t seem to get out of. Republicans come into power and destroy the economy with massive tax cuts for the rich and massive deregulation. Democrats inherit the financial mess and have to spend most of the first term trying to clean it up, with Republicans harping about the deficit they created. By the time the economy really gets rolling after two Democratic terms, Republicans steal the next election and the process repeats. Bill Clinton had to clean up the mess that Reagan/G.H.W. Bush created and finally got the economy really rolling as his term ended. Then the Republicans stole the election with Bush v. Gore. G.W. Bush used Clinton’s surplus to give massive tax breaks to the rich and created the second Depression. Obama spent eight years trying to dig us out with no help from Republicans only to have James Comey hand the election to Donald Trump. And Trump is well on his way to cutting taxes and regulation that will lead us to the next crisis.

It would be nice if Democrats could finally make a good counter-argument to the supply-side voodoo economics that the GOP has run on for the last 40 years. In fact, when you raise taxes on the rich, it not only provides more revenue for the government to create a level playing field for all businesses and opportunity for all workers but it also creates the incentive for the rich to actually invest in the economy, rather than have that money taken by the government. And the history of the last forty years actually bears this out. But, as the GOP has shown for years, Trump in particular, a slogan is far better than reality for getting elected.