Superb jobs data ensures Dems will have their hands full in midterms

You can slice the jobs numbers however you like, but you won’t be able to avoid the unambiguous conclusion that Republicans are going to run hard on the economy in November.

The list of labor market superlatives is impressive: A record 92 straight months of job gains; unemployment at its lowest level since April 2000; and, for the first time since the government began counting, back in 2000, the number of job openings exceeds the number of unemployed people. That’s right: There are more jobs available than people actively looking for work. 

{mosads}Moreover, the pace of job growth has picked up since late last year, mostly because business investment spending is reviving, having been hit very hard by the plunge in oil prices from mid-2014 through early 2016. Capital spending in the oil business plunged by 64 percent, peak-to-trough, and the hit rippled through broad swathes of the economy.

The meltdown ended in mid-2016, and investment spending has since reverted to the pace seen before the oil crash, lifting overall economic growth and boosting the demand for labor. Interest rates are rising, but they remain very low, and credit is still easy for firms to obtain.

The upturn in business investment pre-dates the tax cuts passed by Congress late last year. Indeed, small firms’ investment intentions, as measured by the National Federation of Independent Business — whose membership appears to be overwhelmingly pro-Trump — have risen only marginally since the tax cuts were implemented, and remain below their peak, reached back in August last year. 

Democrats will be quick to point out that the long streak of payroll gains and the decline in the unemployment rate began under the Obama administration. They’d be right: The first of the long streak of payroll gains was back in October 2010.

But they’ll need a better story than that to counter the impending barrage of ads daring voters to change policies, which, on the jobs question at least, seem to be working.

The problem for Democrats is that people by now are used to hearing about strong payroll numbers, because they have been the norm for so long. But when payroll growth consistently outstrips the rate of growth of the labor force, the unemployment rate keeps on falling.

And that does get peoples’ attention, especially when the headline rates hits levels last seen 18 years ago. Pretty soon, unemployment will hit rates last seen in the late 1960s, and then, before too long, the early 1950s. It’s hard to imagine better material for GOP election ads and debate soundbites.

The obvious counterpunch is that wage growth remains very subdued compared to previous periods of labor market tightness. In the past, unemployment rates close to their current level were usually accompanied by wage gains in excess of 4 percent, but the recent trend is only just over 2.5 percent.

Corporate profits, meanwhile, are close to record levels as a share of national income, and the tax cuts make those profits worth even more to shareholders and senior executives. Job security for the average employee has improved immeasurably over the past few years, with layoffs now at their lowest level ever, as a share of the workforce, but financial rewards have not kept pace.

Tax cuts apart, the gaping divide between the rewards to labor and capital in recent years are mostly a lingering consequence of the financial crisis of 2008, not the fault of the Trump administration. Businesses fired workers at an extraordinary rate during and after the crash, but then re-hired them only gradually when the recovery began.

Profits rocketed but firms were scared to take risks, so investment spending rose only slowly. That, in turn, held down the rate of growth of productivity, or output per worker hour. In the flexible and lightly-regulated U.S. labor market, people are paid according to what they produce, in aggregate. So slow productivity growth means slow growth in real— that is, inflation-adjusted — wages.

This began to change in 2015, after investment spending finally began to pick up, but the upturn in wage growth was snuffed out by the oil sector meltdown. Now, though, the rebound in investment looks sustainable. That means it will lift productivity growth, and bigger wage real gains will follow.

Employees also are now in a stronger position to ask to be compensated for higher inflation too, with rising gas prices the obvious source of annoyance. People know that they have become very hard to replace, and that ought to make employers more inclined to do what’s necessary to keep them.

It’s not clear whether the wage picture will improve visibly by November, which is now just five months away. Even if the numbers do look better, the ability of the administration to shoot itself in the foot by failing to keep the media focused on the good news — choosing instead to pick trade fights with key U.S. allies — can’t be overstated.

Neither can the visceral disgust with which the Democratic base views President Trump. If you think the president is fundamentally unfit for office, then there’s probably no unemployment rate and no pay raise that will stop you voting for his opponents. Sometimes, it’s not all about the economy.  

Ian Shepherdson is the chief economist and founder of Pantheon Macroeconomics, a provider of economic research to financial market professionals. Shepherdson is a two-time winner (2003, 2014) of the Wall Street Journal’s annual U.S. economic forecasting competition.