Solid job report not yet a sign of any 'Trump effect'
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There’s no question that the February unemployment figure of 4.7 percent and the creation of 235,000 jobs is good news for the economy.

Unemployment ticked down from 4.8 percent and the labor participation rate was up slightly from 62.9 percent to 63 percent with 340,000 additional people in the labor force. 

What must be determined now is how the Fed will react. The Fed is widely expected to raise interest rates next week and twice more during the year in increments of 0.25 percent.

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The slower the pace of rate increases, the better for economic growth. If it’s too fast, the economy will slow because borrowing will be more difficult, both from an institutional and consumer standpoint.

 

Positive conditions will be impeded by the inability to lend, thereby halting or slowing an increase in spending for homes, autos and other high-priced goods. But inflation reached the Fed’s 2 percent inflation target this month, and so it must keep its eye on price stability as well as economic growth.

In today’s numbers, there is barely any bad news. Wages were up 2.8 percent, compared to a 2 percent increase last month. Construction had the largest one-month increase in 10 years, which is somewhat attributable to good winter weather across the country. But, the monthly figure is only part of the big picture — there’s been a gain of 177,000 construction jobs in the past six months. 

Other sectors did well also. Manufacturing added 28,000 jobs, while mining is up 20,000 additional jobs since October. Private educational services had a strong month with a 29,000 increase and 105,000 added jobs in the past six months. Healthcare added 27,000 jobs.

The only negative number for February was in retail trade. That sector lost 26,000 jobs. Largely attributable to online shopping, employment growth has been flat in this sector for several years. 

While President Trump, as most presidents would, will likely take credit for the positive job news, his policies would not have been able to have any real impact so soon after his inauguration.

What could be affecting employment, however, is the stock market and consumer confidence that comes from a Dow Jones Industrial Average at 20,800 and S&P and NASDAQ at record highs.

Yesterday, the Federal Reserve released a report showing the net worth of households and nonprofits reached an all time high of $92.8 trillion with over $2 trillion added in the fourth quarter. The stock market generated $728 billion and the housing market $557 billion.

The increase in household wealth will increase consumption and aggregate demand and continue to stimulate the economy. The market has continued its surge into the first quarter of 2017 as there is widespread believe that the Trump administration will be good for business.

The news that the president will eliminate regulations on business is interpreted as good by some, but we don’t know for sure if it will lead to expansion and hiring. There are also negative effects to cutting environmental, banking and other regulation that won’t appear on businesses financial statements, but could harm the economy in the long run. 

We will only see a sustained, improved economy when the rise in the Dow is backed up by genuine growth. The administration’s plan to increase defense spending by $54 billion will benefit manufacturing, but increased spending on infrastructure will create jobs in construction and will also benefit the economy as a whole by reducing transportation costs.

There is a great need in this country to repair roads, bridges, railways and airports. We must compete with other countries throughout the world who are far ahead of us in these areas.

The modest increase in interest rates expected by the Fed this year will be seen as a vote of confidence in the economy and will finally move it away from extraordinary monetary stimulus begun at the beginning of the Great Recession.  

Modest increases combined with heightened spending on infrastructure and growth in several economic sectors means a good chance the job market will continue to expand.

 

Amy Schmidt, Ph.D., is an economist and associate professor of economics and business at Saint Anselm College in Manchester, New Hampshire, home of the NH Institute of Politics.


The views expressed by contributors are their own and not the views of The Hill.