Does a solid jobs report change the overall economic picture, and offer the beleaguered Democratic party a new leg up for the midterm elections? My answer is no and no.
Even with all the political slicing and dicing that accompany these big reports, the April employment survey was a lot stronger than virtually anyone expected. Nonfarm payrolls surged by 288,000. Private payrolls gained 273,000. The unemployment rate registered a big decline, dropping from 6.7 percent to 6.3 percent.
Some are arguing that lower unemployment is a function of 806,000 dropouts from the labor force. But that’s a reach. In the prior three months, the small-business-related household survey gained over 1.2 million jobs. So these month-to-month bumps have no meaning. But the trend is clear: The unemployment rate is falling and more jobs are being created.
Putting aside liberal versus conservative debate, more jobs and less unemployment are good for America.
Texas congressman Kevin Brady, the chairman of the Joint Economic Committee and a vocal critic of Obamanomics, made this acknowledgement: “Finally we have a jobs report that is better than merely middling.”
But in a broader sense, the big April number merely offsets bad winter weather and gets nonfarm payrolls back to their long-term trend. Over the past three years, monthly payrolls have averaged 187,000. With the April report, the establishment survey’s trend has moved back to 197,000 a month.
If this were a truly strong and durable recovery, we’d be seeing monthly job gains closer to 300,000. Economist Scott Grannis writes that the April report “doesn’t alter the big picture: private sector jobs have been growing by about 2 percent a year for the past several years. That’s enough to give us 2 to 3 percent overall growth but not much more.”
Looking under the hood, important glitches continue to plague the employment situation. Wages were flat in April and average hourly earnings have increased only 1.9 percent over the past year. Aggregate hours worked gained only 2.4 percent. Putting the two together, you get a modest 4.3 percent increase for nominal GDP (5 or 6 percent would be better).
And there are still far too many people not working. The labor force participation rate actually fell from 63.2 percent to 62.8 percent for April. It’s the same bad sign that has plagued the duration of this recovery.
Similarly, the employment-to-population ratio held steady at a low 58.9 percent. That ratio peaked at 63.4 percent in 2007 during the last cyclical recovery. At the 2000 cyclical peak, the employment ratio was 64.6 percent.
Wall Street economist Michael Darda argues that one of the big wage and jobs problems is “low employment ratios for prime age workers,” adding that “the employment/population ratio for the 25 to 54 segment remains more than 3 percentage points below pre-crisis levels.”
Facts like these should stop Democrats from jumping in the air and clicking their heels. There are too many part-time workers, long-term unemployed, and labor-market dropouts to validate the significance of a 6.3 percent unemployment rate. The newspaper headlines tout falling unemployment, but ordinary folks on Main Street don’t really feel it.
One of the key reasons for the tepid jobs recovery is the virtual absence of long-term business investment. In the weather-beaten real GDP report for the first quarter, which showed economic growth gaining only one-tenth of 1 percent, there was a 2.1 percent outright decline in business fixed investment, including a 5.5 percent drop in business equipment. Economist John Ryding lays this “at the door of tax and regulations.”
This is an anti-business administration. It won’t sign off on the Keystone pipeline. Its centerpiece policy, Obamacare, penalizes the 50th worker for the 30th hour worked, with huge mandated cost increases and/or tax hikes. Who’s going to make a long-term investment with that hanging over their heads?
And then there’s the failure to reform, or better yet abolish, the corporate income tax — including immediate cash expensing for new investment and an ultra-low tax penalty to repatriate U.S. profits sitting overseas. Take a look at the Big Pharma Pfizer-AstraZeneca deal. If Pfizer dilutes its U.S. ownership to less than 80 percent, the headquarters of the newly merged company could be based in London. Why? Because the British corporate tax rate is heading for 20 percent while the combined U.S. federal-state corporate tax is 40 percent. Do we like this tax gamesmanship? No. Can you blame Pfizer, which wants to enhance shareholder value? Nope.
Without big changes in economic policy, this recovery will continue to disappoint. So the GOP should make it very clear this fall that it stands for major tax reform, the Keystone pipeline, all manner of energy expansion, and a total rewrite of Obamacare. These pro-growth measures are simple and easy to understand. They’re the stuff that Senate victories are made of.
– Larry Kudlow is NRO’s economics editor.