By Nick Dulerain, political columnist
President Donald J. Trump’s first month in office has proven to be a mixed bag for the economy. A decrease in unemployment reported for the month of February left Federal Reserve board members wary of the possibility of an overheated economy. Last Friday, the Bureau of Labor Statistics (BLS) published a highly positive Employment Report for the month of February, showing a significant decrease in unemployment. But whether or not this is good news for the Trump administration going forward is still up for debate, as the Federal Reserve resolved to raise interest rates.
According to the BLS statistics, the economy has gained approximately 235,000 jobs, with around 58,000 coming from construction. Manufacturing jobs show similar increases of around 28,000. The Labor Department also reported an increase in wages of 2.8 percent over the past year and an increase in the labor force participation rate to 63 percent. Altogether, the unemployment rate has dropped to 4.7 percent, down from 4.8 percent in January. Likewise, the real unemployment rate (which includes discouraged workers) has dropped to 9.2 percent from 9.7 percent a year ago.
Typically, when an increase in the labor force is observed, an increase in unemployment is expected. However, the BLS report indicates the opposite. This is great news for the economy and for President Trump, who swore to bring back manufacturing jobs during his campaign. Yet this surge in economic productivity could potentially put a damper on Trump’s future plans.
The possibility of overheating prompted the Federal Reserve’s decision to raise interest rates earlier this week. The Fed is mostly concerned with demand-side economic growth, which largely consists of tax cuts and increased government spending—fiscal policies that President Trump has long campaigned for—and unsustainable growth in the economy. The resulting inflation could force the Fed to quickly raise interest rates, plunging the economy into another boom-bust cycle and an inevitable recession. The key here is that the Fed wants to increase rates slowly, as rapidly constricting the money supply has not been a historically fruitful endeavor.
While the BLS report has given the Trump administration some much-needed relief, higher interest rates could hamper plans for a tax code overhaul, which GOP lawmakers hope to have a bill for by August. Higher interest rates could lead the government to raise taxes, since they increase the cost of government interest payments. Furthermore, with the recent bipartisan opposition to the American Healthcare Act, or “Trumpcare,” it seems unlikely that GOP leaders will be able to submit a tax reform draft before Congress withdraws for the summer vacation.
For now, however, it seems that the Trump administration has stuck to its guns and is carrying out the promises made during Trump’s campaign. It is important to note that while many GOP members, and indeed the Trump administration itself, claim responsibility for this delightful employment report, the growth is not atypical of the last 12 months. Jobs have been growing for the past 75 months, according to BLS data. Since inheriting a recovering economy from President Barack Obama, much remains to be seen from the youthful Trump administration. It is navigating through treacherous political waters, especially on how it will deliver on its campaign promises to lower middle-class taxes and put into place a $1 trillion infrastructure plan designed to create employment and perform some much-needed repairs to America’s crumbling bridges and highways.
Photo courtesy Mike Haw, Creative Commons