Popular Economics Weekly
The unemployment rate edged down to 3.8 percent in May, and the number of unemployed persons declined to 6.1 million, reported the Bureau of Labor Statistics this morning. Over the year, the unemployment rate was down by 0.5 percentage point, and the number of unemployed persons declined by 772,000.
This shows a strong economy, but not for long if the Trump administration’s trade war lasts. Because it means our trading partners will retaliate with their own tariffs, boosting costs and lowering the demand for US products.
The manufacturing and construction sectors added 18,000 and 25,000 jobs respectively in May yet have complained they can’t find enough skilled workers. Hourly pay rose by 8 cents, or 0.3 percent to $28.92 an hour in May. As a result, the 12-month increase in wages rose to 2.7 percent after holding at 2.6 percent for three months in a row.
Wages are barely rising, which makes the Fed happy, as wages make up two-thirds of products costs. It means there is very little inflation on the horizon, which should keep interest rates at the low end; another boost to continued growth. But this also means in fact there are still a lot of unemployed workers that are available for work, if wages continue to rise enough that would draw them back into the workforce.
For instance, the number of persons employed part time for economic reasons (sometimes referred to as involuntary part-time workers) was essentially unchanged at 4.9 million in May. And the number of persons marginally attached to the labor force, at 1.5 million in May, was little different from a year earlier. These individuals were not in the labor force, wanted and were available for work, and had looked for a job sometime in the prior 12 months. They were not counted as unemployed because they had not searched for work in the 4 weeks preceding the survey.
This jobs picture means we are near full employment, but it looks like the Trump administration’s new trade war with our allies could mean full employment may not last. Canada, Mexico and the European Union have already announced they will retaliate with tariffs of their own on US products.
It means a substantial rise in product costs, and reduction in the demand for American products, as I said. It could therefore cancel out all the benefits to businesses of the recent tax cuts, since Canadian Prime Minister Justin Trudeau said the fallout from US moves would be “more significant” than it realizes. Ottawa will impose billions of dollars of tariffs on steel, aluminum and a wide range of other U.S. goods, including some food and agricultural products.
The EU said it is also planning to hit back with billions of dollars of levies on U.S. exports which could go into effect staring June 20 and launch a case against American measures at the World Trade Organization on Friday. “This is protectionism, pure and simple,” the EU’s top executive, European Commission President Jean-Claude Juncker, said Thursday. “We will defend the Union’s interests, in full compliance with international trade law.”
If the US isn’t bluffing and carries out these tariff hikes on our closest allies—which would endanger rather than increase our national security—then look for a slowing economy and rising unemployment ahead.
Harlan Green © 2018
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