Hiring was strong and wage growth accelerated in President Trump’s first full month in office. But don’t give Trump credit, at least not yet.
The U.S. economy added 235,000 jobs in February, the Bureau of Labor Statistics said Friday. That topped economists’ expectations and marked the second consecutive month of strong hiring. The unemployment rate fell a tenth of a percentage point to 4.7 percent, reversing its January uptick. Average earnings rose six cents an hour and were up 2.8 percent from a year earlier.
Trump will probably point to the report as proof that his economic policies are working. (On Friday, he retweeted a Drudge Report tweet hailing the jobs number as “great again.”) That isn’t supported by the evidence. Hiring was essentially the same in February as it was in January, when President Obama was still in office, and represented a continuation of an existing pattern of steady job growth. The jump in wages was widely anticipated by economists following an unexpected slowdown in January, and the unemployment rate has been stuck in a narrow band just below 5 percent for most of the past year.
Even if the economy does start to change direction in coming months, it’s unlikely Trump or his policies will be the primary cause. Presidents in any case have little control over the economy, especially in the short-term. The government can (probably) help ease the impact of a recession, and bad policies can (definitely) slow down growth. And presidential policies on things like education, infrastructure and tax policy can have long-term effects, for good or ill. But presidents have little influence over the month-to-month ups and downs of hiring or inflation.
What Friday’s report does show is that the economy continues to hold in the steady-but-not-spectacular pattern that it’s been in for most of the seven and a half years since the recession ended. U.S. employers have now added jobs for 77 consecutive months, a record, and the improving job market has begun to draw more Americans into the workforce. Recent hiring has been relatively broad-based, with good-paying industries such as construction and professional services adding jobs alongside lower paying sectors such as retail and hospitality. (Retailers actually cut jobs in February, although that was probably a one-month blip.)
Yet many of the economy’s longer-term challenges remain unresolved. Wage growth has been weak for much of the recovery, continuing a pattern that began even before the recession in 2008 and 2009; even now, wages are growing more slowly for production and nonsupervisory employees than for workers overall. Separate data from the Bureau of Labor Statistics this week showed that growth in productivity — how much economic output workers generate per hour, a key driver of earnings and overall economic growth — remained weak in 2016. And the aging of the baby boom generation is leaving fewer workers to support an ever-growing population of retirees.
Still, Trump was able to begin his term on an economic high note, a sharp contrast to the fast-moving disaster that Obama inherited eight years ago. Only time will tell whether he and Congressional leaders take advantage of that opportunity to address the economy’s deeper issues.
Here are a few more observations from Friday’s report:
More workers: Trump isn’t a fan of the unemployment rate as an economic indicator, and he’s right that it can sometimes be misleading. The government considers people unemployed only if they’re actively looking for work, which means the unemployment rate can fall for good reasons (people found jobs) or bad ones (people stopped looking for work). There was nothing misleading about February’s decline, however: More people found jobs, the labor force grew.
The labor force participation rate — the share of adults who are either working or actively looking for work — plummeted during the recession and recovery, and was recently at a multi-decade low. That was partly because of the retirement of the baby boom generation, but also reflected the weak economy. More recently, however, the decline has paused — the participation rate has been more or less flat for the past year. It’s unclear how long that can continue given demographic forces, but it is a sign that the job market is drawing Americans off the economy’s sidelines.
No sign of a hiring freeze: One of Trump’s first actions in office was to impose a hiring freeze on the federal workforce. There was little sign of that freeze in Friday’s report, however. Federal employment was essentially flat — it rose by 2,000 — which was more or less in line with where it has been in recent months. On the other hand, manufacturing, a sector Trump frequently emphasizes, added 28,000 jobs, the most in over a year. Overall, job gains were widely distributed across the economy: The BLS’s diffusion index, a measure of how many industries are adding jobs, hit its highest level since December 2015.
A boost from the weather? One possible reason for February’s strong jobs numbers? An unseasonably warm February in much of the country. Fewer people reported being absent from work due to bad weather than in any February since 2002. The construction sector, which is heavily affected by weather, posted its strongest growth of the recovery. The weather certainly doesn’t explain the broader trend of solid hiring, but it may be part of the reason for February’s unexpectedly strong performance.
Fed implications: Friday’s solid report makes it all but certain that Federal Reserve policymakers will vote to raise interest rates at their meeting next week. In a speech in Chicago last week, Fed Chair Janet Yellen strongly signaled that a hike was likely unless economic data took a sudden turn for the worse. A slowdown in hiring or, perhaps more importantly, a second straight month of weak wage growth could have derailed the Fed’s plans. But with Friday’s numbers meeting or exceeding expectations, there’s now nothing standing in the Fed’s way.
The impending rate hike highlights one of the challenges that Trump will face in meeting his economic goals. Trump has pledged to boost economic growth to 4 percent a year. Most Fed policymakers, however, think that because of the aging population and other factors, the economy’s underlying growth rate is only about half that — if growth exceeds that for an extended period, inflation would likely pick up as well as the economy overheats. So Trump and Yellen are to some degree working at cross purposes, with Trump trying to boost growth and the Fed trying to keep it in check.