There was a time in the not-too distant past when the government’s monthly labor report was the most eagerly anticipated and influential of all economic data, and could move markets. Unemployment and a rising number of workers dropping out of the labor market meant the Great Recession had not run its course, the reverse meant that a recovery was rearing its pretty head. Share traders hoped that things were getting better, but no so quickly as to prompt the Federal Reserve Board to raise interest rates to prevent overheating.
That was then, and this is now.
Economy-watchers still had an interest in Friday’s jobs report, but it could hardly be called avid. So the economy added 228,000 jobs in November. Good. And the unemployment rate is only 4.1 percent. Good. Nothing there to change Fed policy of gradually raising interest rates and shrinking the money supply—ever so gradually in both cases. Good.
But no one any longer needs the job report to know how the economy is doing. The accumulation of other data tells that tale. And big piles of money are being moved from claimant to claimant by Congress as it creates winners and losers by adjusting the tax bill now before it. More important to follow the money than to follow the jobs report.
First, the economy. It is growing at an annual rate in excess of 3 percent, which was deemed satisfactory until President Trump upped his target to 4 percent—or higher in his more exuberant moments. True, the increase from around 2 percent to above 3 percent was driven by a narrowing of the trade deficit as the dollar fell in the past year (by about 7 percent against the currencies of our trading partners) and by a rise in inventories, neither of which is certain to prove permanent. True, too, that it might be difficult for an economy already exhibiting labor shortages to expand at a 4 percent annual rate. Details, say euphoric critics, who prefer to concentrate on the good news:
- Consumer confidence rose for a fifth consecutive month in November and is at a 17-year high, with expectations for the near-term future and improvements in the jobs market leading the way.
- Profits of U.S. companies in the third quarter were at their second-highest level in the 70 years in which such data have been kept. This is part of the return of worldwide growth: profits of 20,000 listed companies from around the world increased 19 percent in the past year, to a record high.
- Manufacturing grew in November, adding 31,000 jobs. Fourteen of the 18 sectors reported sales increases. “A renaissance in manufacturing,” according to CNBC’s Jim Kramer.
- Share prices as measured by the S&P 500 index were up this month by about 17 percent over last year, reflecting in part the rise in profits, in part investor joy that Trump is succeeding in rolling back the regulatory state, and in part in anticipation of the “yuge . . . great big beautiful tax cut” that the president plans to give the American people for Christmas. And you always thought Santa Claus had white hair and a beard.
- Demand for new homes is outrunning builders’ ability to find enough workers to build them.
Which brings us to another reason that attention paid to the monthly jobs report is less than in the past: key economic players are focused on the tax bill that is wending its way through Congress. The House of Representatives and the Senate are now reconciling their different versions, operating within three constraints.
The first is time: Trump wants the bill on his desk well in advance of Christmas, never mind that most congressmen have not read and probably never will read its 500 pages, some containing hurriedly scribbled handwritten changes in the margins.
The second is politics. Having failed to deliver on their promise to repeal and replace Obamacare, Republicans fear going into the 2018 elections wearing the devastating label Harry Truman famously pinned on the 80th Congress 70 years ago—“A do-nothing Congress.” Better to pass something than nothing, not good public policy, perhaps, but good politics, which trumps policy in importance in an election year.
Finally, the arcane rules the Republicans are using to enable a bare majority of senators—no Democrats needed—to pass the tax bill limits the amount by which they can run up the nation’s debt over the next ten years to a mere $1.5 trillion. A pittance compared to the $7trillion to $9 trillion Obama loaded onto future generations in his eight years on office. In those days, Republican deficit hawks railed at rising debt, Democratic doves poo-pooed their concern. Now the hawks and doves have exchanged feathers, a not-unusual occurrence in Washington’s political aviary.
The final bill being shaped will contain the good, the bad, and the ugly. The good includes some modest but temporary cuts for middle-class families. The bad includes allowing hedge fund managers to keep the special privileges that Trump railed against during his campaign.
The ugly includes provisions which will enormously enrich the president and his family.
“Trump’s Industry . . . A big winner,” said the New York Times. “Think of Tax Reform as the Trump Family’s Christmas List,” said Alan Blinder in the Wall Street Journal. It works like this: Buy a building with mostly borrowed money. Charge the interest payments as an expense, keeping down taxable profits. Sell the building at a big gain. Invest the proceeds in a similar property, avoid capital gains taxes. Repeat. Leave the final building to your heirs. Repeal of the inheritance tax means they pay no taxes on it.
“This is going to cost me a fortune,” Trump announced some time ago. Another presidential lie? Hardly. Instead, it’s just proof that Cole Porter was onto something when he wrote of the “self-deception that believes the lie.”