This article was published by The McAlvany Intelligence Advisor on Friday, September 7, 2018:
Presidential candidate Donald Trump startled his audiences by predicting that, under his administration, the economy would grow by at least three percent a year, that four percent was likely, and that five percent was achievable. The latest reports appear to prove that not only was he correct, but that the economy is poised to confirm his most generous predictions.
The Conference Board has been busy taking the economy’s temperature. In a 2017 survey, it discovered that the highest percentage of workers polled since 2005 said they were satisfied with their jobs. And that data doesn’t reflect the Trump economy that really started taking off in the second quarter of this year. The Conference Board also reported that consumer confidence in August was at the highest level seen in nearly 18 years, along with improved expectations for the future.
On Thursday, two more reports surfaced, confirming the startling performance of the economy. First was a report from the Department of Labor (DOL) showing that new claims for unemployment insurance – considered a precursor for future layoffs – dropped in August “to the lowest level for initial claims since December 6, 1969.” That’s the lowest level in nearly 50 years!
Next came ADP’s jobs report for August: 163,000 new jobs were created by the U.S. economy last month, slightly below forecasters’ expectations (a first!), but indicative of a robust and growing economy nevertheless. Said Ahu Yildirmaz, an ADP vice president: “Although we saw a small slowdown in job growth, the market remains incredibly dynamic. Midsized businesses continue to be the engine of growth, adding nearly 70 percent of all jobs this month, and remain resilient in the current economic climate.”
Small businesses (with fewer than 50 employees) added 21,000 jobs last month, while medium-sized businesses (with 50 to 499 employees) added 111,000 new workers. Large employers (500 or more employees) added 31,000 new employees. Lost in the headlines, however, were the nearly 21,000 new jobs created by the “franchise” sector of the economy: restaurant chains and auto parts franchises and auto dealers, reflecting growth there as well.
But if those unemployed workers actively seeking employment don’t have the skills needed, doesn’t that put a cap on just how fast the economy can grow? Just because there are more job openings than unemployed workers seeking employment doesn’t mean there’s a perfect match.
Ivanka Trump, the president’s first daughter, thinks that jobs training programs funded by the federal government with taxpayer monies is the answer. She successfully persuaded her father, and Congress, to renew the Perkins Act, boosting federal job training grants to the states by $3.2 billion.
But that is dwarfed by private industry’s efforts. Take, for example, those workers moving to Florida to take advantage of the ABC Institute, funded by the East Coast Chapter of Associated Builders and Contractors. As noted by The New American:
Once an applicant is matched with a full-time job, the employer sends the candidate to the ABC Institute for classes and training. They usually run one or two nights a week for two to four hours each, attended by apprentices after they are done with their regular work day.
Those candidates work full-time from the very first day and are paid for a full 40-hour week. First-year electricians, for example, start at $15 an hour and enjoy $2-$3 hourly raises until they graduate at $25 an hour. If a graduate moves on to get his journeyman’s license, he gets another raise to $29 an hour, or about $4,000 a month.
This explains why south Florida is considered a “worker’s market”: An applicant without skills can move from zero to $15 an hour his first day on the job, and within a few years be making $25 to $30 an hour. In fact, in Miami, plumbers, electricians, brick masons, and carpenters earn far above the local median income: $55,000 to $75,000 a year, with full benefits and a pension, and without the need for a college degree.
The White House just forecast that third quarter GDP growth would come in around 3.5 percent while the Atlanta Fed’s GDPNow model shows 4.4 percent, with previous forecasts by that model ranging from 4.6 to 5.0 percent.
What are the drivers behind the economy’s record-setting performance, and just how high can they drive it? Credit must be given to tax cuts, both individual and corporate, along with the administration’s demand that for every regulation proposed two existing ones must be removed. That’s 2:1. But recent reports are that the ratio is more like 20:1 as executive branch agencies are reluctant to offer new regulations in the present political environment.
And then there’s “repatriation,” where American companies with profits being held overseas are being allowed to bring them back and pay just 15.5 percent tax on them, compared to 21 percent (or 39 percent pre tax reform). There’s an estimated $3 trillion being held overseas, and, in the first quarter of this year, some $300 billion of it has already been moved onshore. These newfound dollars are funding profitable projects already approved and just waiting for funding.
Missing from the conversation almost completely, however, is any mention of the likely long-term impact of Trump’s tariffs strategy. As tariffs come down, demand for products from BMWs and Toyotas to eggs and cottage cheese will go up. That’s an immutable economic law. With the world generating nearly $90 trillion worth of goods and services every year, even a modest reduction in tariffs are likely to have an enormous impact on the United States, which is responsible for nearly a quarter of that global economic output.
The U.S. economy is on a tear, and there is precious little to keep it from setting more records as it grows.
MarketWatch.com: ADP: U.S. creates 163,000 private-sector jobs in August
The Wall Street Journal: Layoffs Just Reached a Half-Century Low
The New American: Economy Booming: Could We See Trump’s Claimed 5% GDP Growth?
The New American: White House Forecasts 3.5 Percent GDP Growth in Third Quarter
The McAlvany Intelligence Advisor: Ivanka Has Drunk the Washington Kool-Aid