This article was published by The McAlvany Intelligence Advisor on Monday, July 9, 2018:
Economist Milton Friedman famously said, “Most economic fallacies derive from the tendency to assume that there is a fixed pie, that one party can gain only at the expense of another.” Perhaps that is why, once again, forecasters were left behind when Friday’s jobs report was released by the Bureau of Labor Statistics (BLS). Those so-called experts guessed that the U.S. economy added 195,000 jobs last month. It actually added 213,000, according to the BLS, but even that number might be too low. The agency revised upwards its estimates of job growth in April and May by 37,000 jobs and June’s numbers could easily be revised upwards next month.
This confirmed the jobs reported released by ADP a day earlier, with 177,000 new jobs being added in June, and May’s number also being revised upward to 189,000.
Noting that the jobs report from the BLS showed more than 600,000 people entering or re-entering the workforce, Kate Warne, an economist at investment firm Edward Jones, concluded: “It’s clear that we’re not running out of workers. There is additional leeway for job growth to remain strong.”
Translation: the economy is not a fixed pie but dynamic and growing. The belief that “when one person wins, another person loses” has been proven wrong once again. A growing pie means that everyone benefits by participating in it. Freidman is right.
Personal and business services led the way with 50,000 new jobs while the manufacturing sector added 36,000. Healthcare employment jumped by 25,000 jobs in June, while the construction industry added 13,000. The only part of the economy that shrank was the retail/food service industry, which laid off 22,000 people in June.
These two jobs reports bode well for GDP – gross domestic product – for the second quarter and beyond. Employers wouldn’t be adding workers if they didn’t think they would add significantly to their productivity. Indeed, Macroeconomic Advisers revised upwards its estimate to 4.9 percent, while Barclays Bank estimates the second quarter will clock in growth at 5 percent.
With the success of the Trump administration in bringing about “fairer” trade, American exports are increasing. The Commerce Department just reported that the trade deficit narrowed for the third straight month, driven by an increase in exports.
The implications of that report from the Commerce Department are staggering. If Trump succeeds in leveling the playing field just with China, for instance, the trade imbalance – currently $400 billion a year – could drop significantly. Translation: more exports from America to China that translates into greater demand for workers and capital here in the United States. Not only is that impressive, it isn’t being included by the forecasters still stuck in the “fixed pie” syndrome.
The robust economy is being reflected in record-low unemployment among blacks and Latinos as well, leading one to ask: where are those 600,000 people who entered the workforce in June coming from? Some suggest that empty-nesters are being enticed back into the economy now that the kids have moved out. Others suggest it’s the flow of graduates from high school and college that are adding to the workforce. Still others see Baby Boomers being enticed out of retirement by their former employers as the demand for their skills increases with the expanding economy.
Some companies are inviting potential hires to attend “boot camps” where they are groomed to take on full-time responsibilities immediately afterward. Aultman Health Foundation, a hospital operator in Canton, Ohio has added hundreds to its payroll of 6,600 this year alone, including nurses who have attended its “boot camps.” Nursing students work as assistants in critical-care units and emergency wards so they can gain the experience they need to become effective fulltime employees quickly.
The key takeaway from Thursday’s and Friday’s jobs reports? The U.S. economy is vastly stronger and more dynamic that most forecasters can conceive. Left alone, the free market will solve problems like those posed by some that the economy is going to run out of workers.
It’s tantalizing to consider how the United States would be transformed if the economy grew consistently at five percent a year. The Rule of 72 calculates that within 15 years the economy would be producing $40 trillion worth of goods and services every year!
The Wall Street Journal: U.S. Hiring Strong in June; Unemployment Rate Rises as More Enter Labor Force