This week media coverage of the presidential campaign should turn to issues of substance, as Republican Donald Trump and Democrat Hillary Clinton deliver economic policy speeches before the Detroit Economic Club. Trump will speak on Monday, Clinton on Thursday.
Trump ‘s recipe of lower taxes and less regulation would bring more employers back to America. Clinton’s call for higher taxes and businesses to “pay their fair share” would drive them away. And reducing trade, as both have recommended, would lower job creation because many Americans are employed by firms that export.
This is important because the July employment data from the Labor Department, released on August 5, are not as optimistic as they looked on the surface. Yes, the data show that the economy created 255,000 jobs last month. Also, revisions to the prior two months resulted in another 18,000 jobs created. Labor force participation rose, as more women and teens entered the labor market.
Predictably, the media celebrated, without delving into the details. “BLOWOUT! July Jobs Report Demolishes Expectations,” said CNBC. “Strong Job Gains, for Second Month, Reframe Economic Outlook,” wrote the New York Times. No matter that labor force participation rates are still at Carter-era levels, before millions of women marched into the labor force.
Greg Karr, executive vice president for Seven Stop RPO, a recruitment process outsourcing firm, told me that “everyone is hiring more.” His clients have aggressive forecasts for the end of the year and expect the strong job market to continue.
But the job market is not quite as strong as it looks. Consider that many of the additional people employed in July were at the lower end of the skill range. According to the Current Population Survey of households, 401,000 more women over 20 were employed in July compared to June, and 97,000 more teens. The unemployment rate for women declined by two-tenths of a percentage point, and that for teens declined by four-tenths of a percentage point.
Women and teens are often secondary workers, who enter and leave the labor market as economic circumstances change. In contrast, there were 79,000 fewer men over 20 who listed themselves as employed, and their unemployment rate rose. Men between 20 and 55 tend to work no matter what happens, so their declining employment is a cause for concern.
The number of people working part-time because they could not find full-time work due to “slack work or business conditions” rose by 199,000, another negative sign.
A look at the data from the establishment survey, a survey of firms’ payrolls, bears out this weakness. Almost 50,000 jobs were created in health care and social assistance, and 45,000 were created in leisure and hospitality, sectors that pay below-average wages. Manufacturing and construction, which pay better, saw increases of 9,000 and 14,000 jobs respectively. Mining and logging saw 7,000 fewer jobs.
The Labor Department produces six measures of the unemployment rate, termed U-1 to U-6. The media generally report only the official unemployment rate, U-3, currently at 4.9 percent. U-3 is total unemployed workers as a percent of the labor force. U-6 includes discouraged workers, those who are marginally attached to the labor force, and those who are working part-time when they prefer full-time work.
Last month U-6 was 9.7 percent, almost twice the level of the more widely reported U-3 unemployment rate, and up from 9.6 percent the month before. The broader U-6 measure mirrors the declining labor force participation rate because many people who say they are not looking for work would likely take jobs if they were available. The share of the unemployed out of work for 27 weeks or longer, defined as the long-term unemployed, rose almost a full percentage point.
That is why the Fed will not see this report as evidence that it can raise rates in September. It is always looking for excuses to keep rates low, and the details of this report will offer adequate cover.
And although President Obama and Hillary Clinton will tout this report as evidence that America is on the right track, and the economy is doing fine, people know better. With additions to employment coming from lower-paying and lower-skill groups, overall productivity in the economy will stay low, together with wages.
Last week I wrote that the 1.2 percent second quarter GDP numbers are proof that the Fed alone cannot drive the economy. Low-interest rates are clearly no longer effective at driving the economy forward.
Lower taxes and less burdensome regulations are needed to encourage US businesses to expand and attract back some of the $2 trillion in multinationals’ earnings held overseas. There’s no reason for the United States to have the highest corporate tax rate in the world.
Further, there’s no reason for the Environmental Protection Agency to dampen the creation of manufacturing jobs; for the Labor Department to discourage flexible work schedules for those who make under $47,000; and for the Equal Employment Opportunity Commission to require employers to report wages, hours worked, race, sex, and occupation to the federal government. These regulations make it harder to create jobs in America.
Recent economic news should be a wake-up call that change is needed to raise productivity and economic growth—and provide better job opportunities for all. Let’s listen carefully as the candidates roll out their economic platforms in Detroit.