November job gains beat expectations, as Wal S’yas (reversed Say’s Law) takes hold

December 6th, 2019 at 9:29 am

Payrolls rose by 266,000 last month and the unemployment rate ticked down slightly to 3.5%. Hourly wage growth for all private sector workers remained where it has been, up 3.1%, year-over-year, while the pay of lower-wage workers–the 82% of payroll employment that’s blue collar in factories and non-managers in services–has been trending up a bit, and was up 3.7% last month (a slight tick down from 3.8% in October). With inflation running around 2%, this translates into solid real wage gains for these workers. The stronger trend for lower-paid workers is also a reminder of who disproportionately benefits from persistently high-pressure labor markets.

The November jobs number of 266K was boosted by the return of almost 50,000 strikers due to the end of the GM strike. Thus, much like we discounted the loss of those workers in the previous month’s jobs report, we should discount their return (I discuss the trend in manufacturing employment below). Even so, our monthly smoother implies, if anything, there’s been a slight acceleration in job gains in recent months (the smoother averages monthly payroll gains over 3, 6, and 12-month windows, and thus smooths out the strike effect).

In tandem with the wage results, payroll gains of this magnitude suggest that the persistently high-pressure labor market is boosting labor supply at both the extensive and intensive margins, i.e., pulling people in and adding hours for incumbent workers. I often stress the positive wage effects of high pressure labor markets, but the supply effects are structurally important, as they imply the potential for increased economic capacity. Fans of economic theory will recognize this as reversed “Say’s Law.” That is, Say’s Law, which is now widely viewed as erroneous, argued “supply creates demand.” It appears more accurate to argue that demand–in this case, persistently strong demand for labor–creates (labor) supply.

A hugely important policy question is whether that supply lasts past the next recession. This will surely require employment-oriented policies to avoid last-hired, first-fired outcomes when demand eventually lags. Such policies include subsidized employment, training, and apprenticeship programs.

Turning to one key, and less favorable, recent sectoral development, many different data sources have shown weakness in manufacturing employment, driven by the trade war and slower global growth. What is sometimes not emphasized enough in this context is that both of these factors tend to put upward pressure of the US dollar. As trade economist Rob Scott pointed out in a recent op-ed: “The dollar has climbed 10 percent since the tariffs first took effect in March 2018, and has also risen 11 percent against the [Chinese] yuan in the same period. This lowers the cost of imports and raises the cost of U.S. exports…”

As the next figure shows (and note the figure smooths out the strike effects), there’s but a large deceleration in manufacturing job gains as the above-named factors have seriously dinged manufacturing activity.

The U.S. job market continues to post impressive job gains. While overall wage trends remain stalled, those of lower-paid workers serve as a reminder of one of the benefits of high-pressure job markets. At the micro-level, especially given low inflation, this means real paycheck gains for working Americans. At the macro-level, it means we can expect the American consumer to continue to fuel the already record-long expansion. Against this broadly favorable backdrop, Trump’s trade war is a clear negative, demonstrably hurting factory workers.

 

 

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13 comments in reply to "November job gains beat expectations, as Wal S’yas (reversed Say’s Law) takes hold"

  1. dilbert dogbert says:

    Welcome Back!
    Feared you had another health problem.


  2. Leo Strine says:

    Jared, why are the 50000 auto workers’ jobs are included in this number because they returned to work from their strike? They are really not new jobs.


    • Jared Bernstein says:

      For the same reason they were left out in Oct, when they weren’t really lost jobs. The BLS just reports the number of payrolls and makes this point in accompanying docs. So, to get an accurate October count, you have to add the strikers back in to the overall count, and for Nov, take them out.


  3. Unimpressed says:

    Regarding the NYT column on trade:

    Democrats shold not link Trump’s trade policy with xenophobia or racism. That is the last thing they should do. That is a destructive path for this country.

    This is why I’ll never vote for Biden or the mainstream Democratic party candidates. Never.

    This political convenience is destroying the country.


  4. Paine says:

    Too late

    But really we don’t have to accept recessions
    They aren’t like winter they aren’t an inevitable
    season of the economy

    We’ve known how to inject added demand
    For aggregate outputs
    when endogenous demand
    spontaneously
    Contracts

    Since the war years of the 1940s
    we’ve seen the outcome of adequate public spending

    Let’s build a giant federal injector system
    Tied to now casting data streams

    An algorithmic autostablizer

    The science is clear
    The engineering obvious
    The politics of course
    as kalecki noticed immediately
    Pits class against class

    Once a job
    more specifically another job
    Is no longer scarce or precious
    The job site every job site every job market
    becomes a very different place
    For wage earners


  5. Smith says:

    Guess I’m not the only reader wanting to respond to the NYT (see Unimpressed above), but frustrated by the paper’s selective and biased comment policy (assuming the writer has no say, or is that so?).

    First, all polls indicate voters hurt by trade will forgive Trump for imposing necessary pain to stand up for America. The unfortunate actual increase in the trade deficit gets overlooked, and the record breaking low unemployment, low inflation, increased wages, and booming stock market are obviously not.

    To say Trump is just lucky would ignore the fact that some of the tax cuts, like Rubio’s doubling the child tax credit to $2,000, and some lower tax rates for rich but not super rich incomes, a wealth effect from stock market though in dollars, it mosly helps rich people. Also the screaming for the Fed to lower interest rates, which helps real estate values and car sales, also probably influences the Fed, just as Yellen had to be influenced by congressional pressure in the opposite direction.

    Now about trade. Bernstein offers very little except a race to the bottom. Countries subsidize industry and dump product? We’ll try industrial policy too. Lets try getting small manufacturers going, ignores how they are wiped out by larger ones, monopolistic and global. Let’s say there is a skills gap, and have government do what industry should, train workers and pay them enough to seek jobs unfilled.

    The most annoying part of his review of his China policy is this:
    “A key starting place is to recognize the futility of trying to get China to significantly change its internal economic model.”
    A billion people, not free, no labor rights, the largest economy, intent on global domination, economic and political, the number one goal of U.S. policy and trade should be to change China’s internal economic model.

    We (the average American) might actually be better off under the pre Nixon disengagement regime. When China decides to return to glasnost and peristroika, we can return in kind. Right now China has no business being allowed in the WTO. We give entrenched corrupt leaders and a military that exerts increasing control over the economy, no incentive to reform.

    Economists and columnists may not have to compete with workers outside of Western Europe who lack labor rights, but regular Americans competing with the 85% of the world (Africa, Asia, South America) without what we consider a free and fair labor market do.

    Instead tackling China, try fixing the mess in Mexico, which despite a reform minded president, still can’t get any real union protections. See what you can do with Mexico first. Then we’ll talk about China.

    Till then, no trade? No problem.


    • Smith says:

      More on trade since Mr. Krugman decided to get into the act today. https://www.nytimes.com/2019/12/16/opinion/trump-china-trade.html When I look at the trade balance as percent of GDP, I pretty much see it staying at great recession levels, and substantially under the most of the 2000s. In fact, you have to go back to 2002 to find a better balance at 2.7%, as it went from near 0 in 1991 to 4.3% in 2006. FRED website, DIY chart Trade Balance: Goods and Services, Balance of Payments Basis/Real Gross Domestic Product https://fred.stlouisfed.org/ use edit feature, add second measure, then a/b
      Thus it’s hard to make the case Trump did not discourage greater trade with China, or that the balance wouldn’t be worse without his shenannigans. Meanwhile, Mr. International Trade (Krugman’s area of expertise) is hard pressed to propose anything even remotely satisfying to workers still losing their jobs to China and places south. But I would still focus on the Democratic inaction towards Mexico. That is the true measure of how little Democrats (or Republicans) care about the loss of manufacturing. The policy perscription is simple, no justice, no trade.
      This seems more on the mark:
      https://www.thenation.com/article/nafta-usmca-trade-agreement/
      But when it comes to labor ecnomics, Krugman is pretty clueless.
      Who is this guy Bacon writing for The Nation?
      Click on About the Author tab here:
      https://www.barnesandnoble.com/w/illegal-people-david-bacon/1100313581


  6. elkern says:

    JB – I disagree strongly with your penultimate sentence (“At the macro-level, it means we can expect the American consumer to continue to fuel the already record-long expansion”) in two ways.

    First, I believe that the current “expansion” is really a bubble, driven by Keynesian effects: huge government deficit spending, perversely applied pro-cyclically. Furthermore, the Fed (intimidated by Trump?) has turned back toward expansionary Monetary policy, propping up Wall Street with $T infusions to the Repo “market” (“racket” might be more accurate).

    Second, I don’t believe it’s rational to expect this expansion to continue. Bubbles pop. As usual, the question is “when?”.

    I had expected a blow-out in Trump’s third year. I think the Repo Surprise in September could have triggered the Pop, but the (NY) Fed chose to paper it over & kick the can down the road. But the longer the party continues, the worse the hang-over will be. The Fed is using all it’s ammo to keep the ball rolling; with Rates near Zero, Monetary Policy won’t be able to kick-start a stalled economy.

    If the Bubble blows soon, Trump will lose the 2020 election, and the rump GOP will prevent recovery by stalling the required Fiscal stimulus. If the bubble continues through next November, Trump wins.

    Either way, we’re screwed.

    Have a nice day! (sorry…)


  7. Gerald Scorse says:

    Elkern: Allow me to disagree.

    If Trump loses, the Democrats might well retake the Senate as well. In that case, I don’t think “the rump GOP” would be able to prevent “the required Fiscal stimulus.”

    Neither do I think a continued bubble (if that’s what it really is) would in any way guarantee Trump’s re-election. The so-called bubble was there is 2018 too, and the Democrats retook by House by a huge margin.

    So, bubble or no, we won’t necessarily be screwed either way. It could be of course, but I’m betting it won’t happen. 🙂


  8. DJ Smith says:

    Raised in Chicago as a staunch Democrat during 4 generations, I ask YOU this question. The Democrats are trying to impeach a President for trying to expose a crime, and then elect the person who committed the crime. Why would “I” vote for Biden? The stock market was 19.1 when Obama left office. Today it’s 29.1. I voted for Trump in 2016 because of ONE word, Benghazi. I will vote for Trump in 2020 because of MY 401, MY IRA. Biden needs to go home.
    Respectfully,
    DJ Smith


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