Back in November, when some commentators and analysts were beginning to loudly whisper about a recession, I pointed to signs of resiliency in the U.S. economy. In December, when media focused on reduced corporate investment and took it as a sign of a looming recession, I explained why it was natural for capital formation to plateau at this point in the business cycle. Again, I noted, there were no significant signs of a recession.
In January, when the GDP numbers came out for the last quarter of 2019, I repeated that we were not heading for a recession.
We now have the employment numbers from the Bureau of Labor Statistics for January. Once again, the Trump economy is showing remarkable resiliency. In the past year, the private sector has added 2,056,000 jobs, with a total of 6,351,000 since Trump took office three years ago; with a third of the total job growth happening in 2019, the Trump economy is not only strong, but grows jobs at a steady pace. This bodes well from an inflationary viewpoint: the private sector has time to expand capacity and avoid upward price pressure.
A closer look at the distribution of job creation reinforces the impression of an economy in good balance. Capacity-growing industries such as construction and infrastructure services (technically known as "trade, transportation and utilities") only saw 21.7 and 28.7 percent of their growth, respectively, in the past year. Manufacturing has also reached a comfortable capacity level, adding only 7.3 percent of its total three-year job record in 2019.
By contrast, services that tend to grow at a more mature point in the business cycle, saw strong job growth last year:
- Education and Health added 666,000 jobs in 2019, which is 41 percent of industry total for the past three years; this industry saw its strongest job-growth year since 2016;
- Other Services, which consists primarily of a conglomerate of consumer-oriented services, grew by 92,000 jobs, 43.6 percent of its total 211,000 jobs under Trump;
- The information industry, which has added 68,000 jobs since Trump took office, added 69 percent or 47,000 of those last year.
Some industries are apace with the overall economy:
- Finance and insurance added 32 percent of its Trump jobs in 2019;
- For professional and business services, the same number was 35.2 percent; this industry expanded its employment more in 2019 than it had since 2008;
- Leisure and health added 381,000 jobs in 2019, just over 38 percent of its total 996,000 in the past three years.
With all these numbers in mind, though, I maintain that while the U.S. economy is not headed for a recession, it is taking a breather. The investment plateau from late last year is combined with a slowdown in the growth rate of private-sector jobs. From January 2019 to January 2020 private employment grew by 1.64 percent in total. That number is a hair below the average for the preceding three years (1.76) and the lowest since 2011 (1.14), with the exception of 1.63 percent in 2018.
It is also worth noting that the mining industry reduced its employment by just over 4.2 percent. This is far less than what we saw in the Great Recession (-12.6 percent in 2011) and the recent dip of 2016 (-178) and 2017 (11.65). It is much more in tune with the mild recession - basically another breather - in 2003, when the minerals industry reduced employment by just over 4.4 percent.
A small decline in minerals jobs is expectable when the economy has reached a satisfactory production capacity. The industry is also highly volatile, both in production value and in employment, somewhat limiting its predictive capacity in business cycle analysis.
Again, these are just jobs numbers, a slice of the economy, but they do show that there is still steam in this business cycle. The Trump administration's combined policy of deregulation, tax cuts and a revamping of U.S. trade policy is working.
The only thing to wish for yet, is a return to three-plus percent annual GDP growth. I have maintained that this is not attainable unless Congress does something serious about government spending; fortunately, the latest budget from the Trump administration would take a big step in that direction. Romina Boccia at the Heritage Foundation has explained this point well.
If the president's budget were combined with a Tax Cuts 2.0 in the next 12-18 months, even four percent growth could become a possibility.