The national unemployment rate is still at 3.6%, its lowest level since 1969, but Friday’s jobs report from the U.S. Department of Labor offered signs of weakness in the American economy as the presidential race gets underway.
The economy added just 75,000 jobs in May, bringing average job growth over the past three months to 151,000 ― down from 216,000 this time last year. And while worker wages continued to grow, the pace slowed, rising at a 3.1% rate, down from a peak of 3.4% in February.
Most economists believe a low unemployment rate puts upward pressure on wages: With fewer desperate workers willing to take low-paying jobs, businesses are forced to offer higher pay to keep and attract talent.
“While the slower job growth reported for May is discouraging, probably the most disconcerting aspect of the report is the evidence that wage growth is actually slowing in spite of the 3.6 percent unemployment rate,” said Dean Baker of the Center for Economic and Policy Research in his review of the data.
The numbers prompted an uncharacteristically bleak statement from Rep. Kevin Brady (R-Texas), the top Republican on the House tax committee.
“These numbers are less than hoped for but not surprising given the uncertainty over global trade tensions and a dysfunctional Congress led by Democrats obsessed with investigations, impeachment, and raising taxes rather than working with Republicans to solve America’s challenges,” Brady said.
Predictions of economic doom have followed every major economic policy decision from President Donald Trump, from his bankers-and-brokers-first tax cuts to his chaotic tariff program. But while none of Trump’s top-line economic initiatives have accomplished much for working people, they have also not disrupted the economy enough to throw growth off track. Back in 2017, most economists considered the American economy to be at full employment ― meaning it could not create more jobs without fueling inflation. Instead, millions of jobs have been created without a substantive increase in prices.
But the economy won’t just keep roaring ahead on its own forever. As of this month, the recovery from the Great Recession, which ended in June 2009, is tied for the longest on record. Some economists fear it could run out of gas in the next year.
What happens next could be up to the Federal Reserve.
The Fed regulates overall employment and inflation in the American economy by adjusting interest rates ― the price of loans for consumers and businesses. Raising rates typically slows down the economy by making it more expensive for consumers and businesses to take out loans and spend money to grow the economy. By making it cheaper to borrow money, lowering rates can help grow the economy. But growth can also fuel inflation, as higher wages increase worker purchasing power.
Ever since the 2008 financial crisis, the Fed has kept rates relatively low, including a nine-year stretch in which rates were effectively zero. But since the beginning of 2016, officials at the central bank have been eager to raise interest rates ― in part because they are simply accustomed to operating with higher interest rates, and in part because many want to have room to cut rates if the economy slows down. With both job and wage growth slowing down, many economists hope the Fed will cut rates at its next meeting in June.
The political stakes are high. The strong economy has been one of Trump’s favorite talking points throughout his presidency. Conventional wisdom in Washington holds that voters are more willing to ignore Trump’s constant scandals and abuses of power as long as the economy is in decent shape.
“You can’t impeach a president for creating the best economy in our country’s history,” Trump tweeted last month.
All he needs is a little help from the Fed. To that end, the president has shown he’ll use bullying to get the kind of monetary policy he wants.
“The only problem our economy has is the Fed,” he tweeted in December during a stock market swoon. “They don’t have a feel for the Market, they don’t understand necessary Trade Wars or Strong Dollars or even Democrat Shutdowns over Borders. The Fed is like a powerful golfer who can’t score because he has no touch – he can’t putt!”
Since the late 1970s, the Fed has adhered to a policy of strict “independence” from the executive branch. Economic policymaking is much easier to do when the central bank coordinates with Congress and the administration, as it did for much of the 20th century. But much of the economic and legal professions have come to believe that economic management should not be subject to the short-term pressures and passions of a president eyeing the next election.
As a result, many within the Fed are eager to assert their independence from Trump by bucking his oft-repeated demand for low interest rates. Trump shot himself in the foot by replacing Fed Chair Janet Yellen ― an Obama appointee fond of low rates ― with Jerome Powell, a Republican who professed a desire to raise rates prior to his confirmation. But Powell also does not want to cause a recession by being excessively stingy.
In remarks this week, Powell said he had his eye on trade negotiations and wobbly economic data. “We are closely monitoring the implications of these developments for the U.S. economic outlook and, as always, we will act as appropriate to sustain the expansion,” he said.