Authored by Gordon
Gray, AAF’s Director of Fiscal Policy
While many readers are no doubt well on their way to achieving their New Year’s
goals, today we must look back at 2019, specifically the last employment report
of the year. While observers are still awaiting a verdict on the holiday
shopping data, there are indications
that the American consumer continues to be a source of strength in the United
States. Trade tensions eased (though the medium- and long-term trade outlook
continues to be fraught) in December. Risks of recession also appear to have
receded. Indeed, the chief economist at Goldman Sachs reportedly observed that
the U.S. economy is “nearly-recession
proof.” In short, the year closed out with optimism. Did the jobs
numbers measure up to the holiday spirit?
The contemporaneous data suggest rather more of the same from the U.S. labor
market – an expanding service sector, shrinking manufacturing, and a remarkable
capacity to absorb new (or rejoining) entrants to the labor market. Since
April, the United States saw 7 consecutive months of labor force growth, with
over 1.9 million Americans joining the labor market, and unemployment still
declined. A “2 handle” in the December ADP report only reinforces a sanguine
view of December employment figures.
Taking a step back, the overall health of the economy is sound, but it’s not
exactly booming. GDP growth remains somewhat below the administration’s
somewhat optimistic outlook and is below the prevailing rate of growth in other
periods of rapid growth in the 2000s and 1990s. Achieving similar growth today
would be more difficult given demography and a sluggish global economy, but is
not impossible with the right policy mix – it’s just more difficult. But the
2.3 percent real GDP growth rate for Q4 that the Atlanta Fed Nowcast is showing
is probably much closer to the mark.
For December, I expect a healthy employment gain and guesstimate that payroll
growth in November was 175,000. I expect unemployment to stay at 3.5 percent. I
expect workers will see a 9 cent, or 3.09 percent annual, earnings bump.
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