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Strong Jobs Report Means More Economic Growth Ahead

Strong Jobs Report Means More Economic Growth Ahead

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Monday, 09 December 2019 02:15 PM Current | Bio | Archive

The Bureau of Labor Statistics just reported that 266,000 new jobs were added to the economy in November. This figure easily surpassed the 2019 monthly average of about 170,000. In addition, employment figures for both September and October were revised upward. The strong hiring means that economic growth is likely to increase next year.

President Donald Trump has set growth as his top economic priority. That reverses the top priority of the prior administration that set curing perceived social injustices as the top policy goal.

For instance, the Obama administration thought it was an injustice that all Americans did not have health insurance. It was an injustice that banks took advantage of consumers and it was an injustice that CEO’s earn so much more than the average workers.

Each time action was taken to cure those perceived social injustices, economic growth slowed. To solve the health care issue, the Affordable Care Act (ACA) was passed which eventually required nearly all employers to offer health insurance to every employee or pay a $3,000 fine. This added to the cost of labor and slowed economic growth.

The ACA also had 21 tax increases that we paid mostly by the middle class. This reduced the spendable income of consumers and slowed economic growth. The capital gains tax rate was also increased reducing capital formation, which slows economic growth. In 2012, Obama raised taxes on the highest income earners by 10%, further reducing capital formation.

The Obama administration, through numerous executive orders, imposed growth stifling regulations on business. This too added to the cost and tended to slow economic growth. The result was that from 2007 to 2016, growth averaged just 2% annually. This slow growth reduced the number of jobs and opportunities for working class Americans.

Another result of the slow growth economy was stagnant wages and a large increase in the number of adults leaving the job market simply because there were no jobs available. The slow growth also meant that the recovery was the weakest on record.

In 2017, the newly elected Trump administration immediately eliminated many of the counter-productive and growth stifling regulations of the prior administration. Then Trump convinced Congress to cut taxes for all Americans. In 2018, tax cuts for the middle class increased demand. Tax cuts for the upper class and corporations increased capital formation allowing supply to expand. Economic growth increased to 3.1% in 2018 while inflation remained low.

Had the Federal Reserve not increased interest rates eight times from the end of 2016 to the end of 2018, and shrunk the money supply by nearly half a trillion dollars in 2018, growth may have hit 4%. Fortunately, the FED realized their mistakes. They cut interest rates three times in 2019 and stopped shrinking the money supply.

The November strong jobs report and the reversal of the FED’s growth stifling policy, will raise economic growth. Couple that with wages increasing at the fastest rate in decades and inflation remaining below 2%, growth could really accelerate next year. Consumers are very confident which means they are willing to spend.

Because the stock market has reached record highs, consumers’ retirement plans have increased in value. That makes consumers feel wealthier which means they will likely spend more.

The first signs of the increased strength in consumer spending can be seen by looking at sales for the past Black Friday and Cyber Monday. This year’s Black Friday’s sales were $7.4 billion which is 5% more than last year. Cyber Monday’s sales were $9.2 billion which was a 16% increase over last year. It looks like this year’s total holiday purchases will be 4% to 5% higher than last year.

Consumer spending accounts for 70% of GDP. About 20% of GDP comes from federal government spending which although everyone wants to control it, continues to increase. Business investment and the foreign sector account for the rest of GDP. While Business investment has been lagging mostly because of uncertainty, it is likely to increase next year after the trade deals are finalized and the impeachment process ends.

The jobs report is the beginning of more positive economic news ahead.

Dr. Michael Busler, Ph.D., is a public policy analyst and a professor of finance at Stockton University in Galloway, New Jersey, where he teaches undergraduate and graduate courses in finance and economics. He has written op-ed columns in major newspapers for more than 35 years.

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DrMichaelBuslerPhD
The jobs report is the beginning of more positive economic news ahead.
jobs, economic, growth, trump
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2019-15-09
Monday, 09 December 2019 02:15 PM
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