Realist, not conformist analysis of the latest financial, business and political news

US Economy Adds 230,000 Jobs – Trump’s Tax Cuts Take Effect

The United States economy has added 230,000 jobs in September in the private sector, well above consensus estimates. It probably is right to say that this is a result of Donald Trump’s tax cuts – it’s the reason why that is so which is the issue. The economy as a whole is at what we’d generally call full employment and on that front there’s really only Danny Blanchflower’s undermployment to worry about.

In a recent research paper, the economists David Bell and Danny Blanchflower insist that the persistence of low wages in the UK and US is a result of unemployment being replaced by underemployment.
Instead of surplus labour rotting on the dole, people instead find themselves in temporary and part-time jobs. Reluctant though I am to take him seriously, Blanchflower might be on to something, so it’s worth testing their hypothesis.

The result of such a test being that he might have a point but if he does that’s because that crushing of union power, reform of the labour markets, worked. This is, for this stage in the economic cycle, a pretty high number:

Private-sector employment soared in September, as employers added 230,000 jobs, Automatic Data Processing Inc. reported Wednesday. This is the highest hiring rate since February. The gain was well above forecasts from economists polled by Econoday, who had expected on average an increase of 179,000. August’s gain was upwardly revised to show 168,000 growth instead of a previously estimated 163,000.

So, that’s all good news for the economy as a whole, right?

Large businesses, which have at least 500 employees, added 75,000 jobs and small businesses, with 49 employees or less, added 56,000 jobs.

That’s an important point. Jobs growth normally comes from small and medium sized businesses. Not always, but generally, large businesses reduce their labour force over time as they become more efficient and don’t have the potentially high growth rates of those smaller companies. That even large companies are adding labour shows it’s all humming along.

Which does bring us to Trump’s tax cuts. We could say that cutting the corporate tax rate has led to an investment surge and that’s what is causing it all. That’s what the Administration would claim at least. It’s also possible to say that this is just a Keynesian boost – spending wasn’t cut as much as taxes were, the deficit is ballooning out, we’ve a boom on our hands for that reason. Given the time it takes to invest that second explanation also seems more likely.

This booming job market also explains why Amazon raised minimum wages to $15 an hour:

Faced with a tight labor market and a busy holiday shopping season, retailers have boosted wages to lure workers. In typical fashion, however, Amazon has outdone them.

The e-commerce giant’s decision to raise its minimum wage to $15 an hour will make it harder for traditional retailers to hire the staff they need. The result could be lost sales or, worse, crowded stores without enough staff, sending shoppers online, most likely to Amazon.

“Tight labor market” is the operative phrase there. We’ve not got large numbers of people hanging around hoping for a job. Thus anyone desiring more labour has to tempt it away from other employers. So, that’s what they do – by raising the wages they offer. As Amazon is indeed doing and as McDonald’s, Target and Walmart have all done in recent years.

But as to why the boom? Best bet currently is straight old deficit boosting of the economy.

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5 years ago

“Spending wasn’t cut as much as taxes were.” Spending wasn’t cut at all; in fact, the “sequester” was completely killed. But private investment is exponential and driven by consumer desires, while government revenue means eating the seed corn. Among several bad alternatives, let’s run a deficit! Regarding “underemployment,” Trump has done NOTHING about Obama-care, which still penalizes employers of 50 or more employees working 30 or more hours a week. (The Employee Mandate survives, albeit at a penalty of $0, but this only takes effect after the election.) The Employer Mandate led to Americans working two part-time jobs. So much… Read more »

Esteban DeGolf
Esteban DeGolf
5 years ago

A YUGE! (sorry, couldn’t help meself) impact has been the deregulation enacted by the Trump administration. They have removed a helluva lot of shackles from business. The Obumble admin could have hardly hobbled the economy more if they intended to. The Trump administration had a lot of low hanging fruit to choose from.

5 years ago
Reply to  Esteban DeGolf

Deregulation has consisted mostly of rollbacks of Obama initiatives, especially using the new procedure where a bare majority in Congress can cancel the proclamations of a lame-duck President. It’s a partial rollback, not a deregulatory surge. The Department of Energy (now led by a Secretary who vowed to kill it, until he found he could bias it back toward fossil fuels) still mandates that we curtail our lives and dilute our gasoline (costing more energy than it saves), based on its OBSOLETE mandate to free us from dependence on foreign oil. ONE of the dozen anti-wealth Obama-care taxes has been… Read more »

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