The latest jobs report confirms that, on the eve of the coronavirus outbreak, the US economy was healthy, and that there was little chance of a near-term recession. I would go so far as to say that, even with the coronavirus outbreak, the chances of a recession in the near-term are remote. This helps Donald Trump and the Republican Party as we go into the midterm elections in the US. Some analysis and commentary below
The jobs data
The headline number was very good, with non-farm payrolls increasing by 225,000 after an upwardly revised 147,000 uptick in December. Benchmark revisions, as expected, revised some prior years’ data down. Of particular note was 2018 where the job gain went down to 2.31 million from the originally reported 2.68 million. But overall, these were good numbers.
The unemployment rate did tick up a notch from 3.5% to 3.6%. But that was entirely due to increased labor force participation, something normally associated with a healthy job market. So the slight increase is nothing to worry about at this point. If anything, it shows that there is still some additional slack in the labor market as more workers are still entering the workforce, eleven years into this business cycle.
I tend to look at first derivative statistics to see trends and what we have seen in non-farm payrolls is a trend down in rolling 12-month job gains from a January 2019 peak. Where we had created 2,462,000 jobs in the prior 12 months to January of last year, that number has fallen to 2,052,000 this year. I don’t think there is reason to be overly concerned about this drop just yet. We have seen double peaks in trend job growth within business cycles. In fact, it’s the norm due to mid-cycle slowdowns. Moreover, we are 11 years into this cycle with the headline unemployment rate below 4%. We can’t expect as many jobs to be added as earlier in the cycle.
On the whole though, I would say the report confirmed a lot of previous data we’ve seen, from the bullish ISM non-manufacturing report to the bullish ADP report earlier this week to the low level of initial jobless claims. But it also confirmed the lingering weakness in manufacturing employment that we saw in the ISM Manufacturing survey that came out earlier in the week. So, overall I would say this report was quite representative of where we were pre-coronavirus.
I mention the coronavirus outbreak because it represents a wild card. It’s a Black Swan event. And we simply don’t know how many lives will be lost and how much damage it will do to the global economy. I tend to believe the US is best-positioned to withstand any downshifts in growth of the developed economies. So, it’s going to take a major and sustained impact to dent that position.
The political impact
Now that the Trump impeachment trial is over, we can look forward to think about what the economy means for US politics. On the eve of the acquittal, Gallup polled Americans about the President and the two main political parties. And what they found in this Jan 16-29 poll was that Trump had his highest approval rating since taking office at 49%, with 50% disapproving. There was a polling gap of 87% between Democrats and Republicans though, the largest Gallup has ever measured, showing an extreme level of polarization.
The Republican Party has also seen its approval ratings go up. “51% of Americans view the Republican Party favorably, up from 43% in September. It is the first time GOP favorability has exceeded 50% since 2005.”
“Meanwhile, 45% of Americans have a positive opinion of the Democratic Party, a slight dip from 48% in September.”
I won’t make any comments about whether the impeachment itself was responsible for any of the polling data. Instead, I want to focus on what it means going forward because I had once written that a recession would sink Trump. There’s going to be no obvious recession before the election. And so, Trump can campaign on having steered the American economy toward a brighter future.
And, in that vein, he would argue that his policies and the policies backed by and made law – largely by Congressional Republicans only – are what are sustaining the economy. So, the argument is that electing a Democratic President – especially one that wants to deviate drastically from the status quo – risks throwing the US economy into turmoil. And the same would be true about electing Democrats in the Senate and the House under that logic.
I think Democratic candidates are going to have a hard time refuting that logic, especially to the degree that their policy prescriptions are radically different than the status quo, like Sanders or Warren. Democrats are best positioned to make a case about an uneven distribution of economic gains, a lack of economic security, particularly regarding healthcare, and corruption and chaos Trump has brought to governance and global affairs.
But, my view is that a strong economy presents an uphill battle for a Democratic candidate, and that the obvious disharmony in the Democratic Party is an ominous sign. As upset as Democrats are with the changes that Trump has brought to bear, indicating turnout should be high for them, the US economy’s strength and the Democrats’ lack of unity will make for a difficult election season.
There is no indication that Trump’s base of support has eroded because of the Ukraine Affair and the Impeachment proceedings. It may be just the opposite.