The US unemployment rate fell to 3.7% in September, the lowest rate since December 1969. The United States is the largest economy in the world in terms of nominal GDP. The U.S. GDP was estimated to be $18.46 trillion in 2016. The U.S. dollar is the currency most used in international transactions and is the world’s…
The US unemployment rate fell to 3.7% in September, the lowest rate since December 1969.
Background
The United States is the largest economy in the world in terms of nominal GDP. The U.S. GDP was estimated to be $18.46 trillion in 2016. The U.S. dollar is the currency most used in international transactions and is the world’s foremost reserve currency.
The International Monetary Fund stated in July that the US economic growth will be 2.1%. It downgraded the nation’s growth rate from 2.5%. However, the US administration headed by President Donald Trump has maintained that the growth rate would be 3% in 2018. US hopes to give a boost to its economy through expected tax cuts and federal spending. The IMF had ruled that US’ projection was unlikely as the labor market is already at a level consistent with full employment. It also critiqued the US administration’s ever evolving policy plans as a source for uncertainty.
The US stock market has enjoyed a bull market since 2009. For the first time since 2007, the market closed above 14,000 in February 2013. The market has been rising since the US presidential elections. In August 2017, For the first time in its 121-year history, Dow Jones Industrial Average broke the 22,000 barrier.
Analysis
The US unemployment rate fell to 3.7% in September, the lowest rate since December 1969.Figures from the Department of Labor also showed the US economy created 134,000 jobs during the month, fewer than were expected.
Significant jobs growth was seen in professional and business services, healthcare and construction.Average hourly earnings rose at an annual rate of 2.8% in September, down from 2.9% in August.
Employment data for July and August were also revised to show an additional 87,000 jobs were created than first reported.
Hurricane Florence, which battered the US East Coast in mid-September, was cited by the Labor Department as a factor for some employment changes, specifically leisure and hospitality, which lost 18,000 jobs in the period.The Labor Department said it was “impossible to quantify” the hurricane’s net effect on employment.An unemployment rate of 3.7% is certainly quite an achievement.
From the low point in the aftermath of the financial crisis, the number with jobs has increased by almost twenty million.
However,the very low unemployment rate also reflects an increase in the number not looking for work – if they are not looking they are not classified as unemployed.
A recent report from the Organisation for Economic Cooperation and Development said that compared to other countries “a large share of the population remains at the fringes of the labour market”.
The OECD suggested a number of reasons, including what president Trump and many others have called the opioid crisis – the widespread misuse of and addiction to certain prescription drugs.
Economists predict the US Federal Reserve will continue to raise interest rates well into 2019, as better-paid US workers spend more and increase inflationary pressures.
The escalating trade war between the US and China does not appear to have affected hiring in factories.
The data showed manufacturing jobs continuing to multiply in September, with 18,000 added, reflecting a gain in durable goods industries. In 2018 so far, manufacturing has added 278,000 jobs.
Washington last month slapped tariffs on $200 billion worth of Chinese goods, with Beijing retaliating with duties on $60 billion worth of U.S. products. The United States and China had already imposed tariffs on $50 billion worth of each other’s goods.
Jobs in professional and business services rose by 54,000 in September and has increased by 560,000 over the year.
Healthcare employment rose by 26,000 in September. For 2018 so far, healthcare jobs have increased by 302,000.
Counterpoint
The impressive unemployment numbers may prove to be problematic for the employers. Low unemployment usually drives up wages, which may lead to mass layoffs in the near future if the trade war isn’t resolved. American companies have taken advantage of cheap and high-quality Chinese labour for the past few decades, which have in turn, provided excellent profit margins with dramatically reduced operating costs.
However, the ongoing trade war is seeing a reversal of manufacturing back to the US, which has costlier labour, more non-pay benefits as well as greater unionisation. All this means that the profit margins the companies enjoyed with Chinese labour will be erased in a few months, if not weeks, leading to significantly higher operating costs. A 3% unemployment rate is, therefore, unsustainable for the US economy.
Assessment
Our assessment is that the recovery and restricting programs initiated under the Obama administration, and strengthened under President Trump have unleashed the full capacity of the US economy. The ongoing trade war, however, may hit the brakes on Washington’s impressive economic performance over the last few quarters. We believe that the unemployment figures will increase marginally in the next two financial quarters, after which we can expect a dip in job growth. We also feel that the trade war will heavily influence the economic performance and growth creation capacity of the US economy.
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