Global Macro Monitor

It is 94 days and 10 hours until the November 6th midterm election, which will determine the fate of the Trump presidency.  All things are now political, including, and, most notable, today’s nonfarm payrolls report.

We did an in-depth analysis of what is happening in the labor market in our May post, Deconstructing The U.S. Jobs Market.

July Employment Report

Nonfarm payrolls came in less than expected, increasing by 157k in July with the unemployment rate moving down slightly to 3.9 percent.   Payroll jobs extended their streak of 94 consecutive months of positive growth, which began in October 2010.

The average monthly change in payroll employment during the streak has been an increase of 200k jobs per month.  July’s number thus underperformed the average but prior months were revised up, increasing the 3-month moving average to 224k.     There is too much noise in the data to make inferences from one month of data.

The Trump v. Obama Jobs Machine 

As we move closer to the November election, a big debate is coming on the economy, especially over jobs.    The economy is in good shape, but the growth is not trickling down to most of the labor force.

The economy, as measured by real GDP growth, is significantly stronger in the first 18 months of the Trump administration than the last 18 months of President Obama’s term. However,  job creation is oddly lagging, and real wage growth is lower under Trump than Obama.

Monthly Job Increases

The chart illustrates the monthly change in nonfarm payrolls in President Trump’s first 18 months has averaged 190k versus President Obama’s 206k in his last 18 months in office.

There are three more employment reports before the midterm elections, and nonfarm payrolls will have to increase by an average of 350k per month for Trump’s job machine to exceed Obama’s 213k monthly increase in his last 21 months in office.    That just ain’t gonna happen, folks.

Employment Growth By Sector

The table breaks down the job changes by sector.

Not Your Mother’s Manufacturing Jobs

President Trump deserves credit for reviving manufacturing employment, but these are not the traditional manufacturing jobs of historical folklore.  For example, employment in the auto and light truck manufacturing sector continues to decline, 9k jobs lost since President Trump took office.   This may be one of the factors why he is polling so poorly in Michigan and the midwest states.

Moreover,  even after the implementation of tariffs,  employment in the primary metals manufacturing sector, which includes the celebrated steel mills has only increased by 14k since January 2017.

It also seems odd wage growth is much slower in manufacturing and mining under Trump. It may be due to the fact there is so much slack in these sectors.

Food And Booze Manufacturing Jobs

Conversely,  employment in food manufacturing and brewpubs (producing craft beer), wineries, and distilleries is booming, and account for more than 20 percent of the manufacturing jobs created during the current administration.  What the hard hats would probably label “snowflake” manufacturing are what economists call nondurable goods.

Upshot

The economy continues to hum along, but most the gains appear to be accruing to capital rather than labor.  We do sense a  political outrage building over the tax cuts being used mainly for stock buybacks and not new hiring or wage increases.

Here is a rant from a recent piece from none other than Forbes Magazine, the bastion of capitalist Wall Street,

The decades-long diversion of business income to shareholders has resulted in a soaring stock market but also stagnating incomes for most of the population. If this gargantuan transfer of assets to the existing owners of shares is allowed to continue, nothing less than a global political or financial cataclysm—or both—is in the offing. The good news is that remedial action may be on the way.

Let’s be clear. A massive extraction of resources for shareholders is not the way capitalism used to work. What’s now happening would have been illegal only a few decades ago. The principal mechanism enabling this massive shift of resources—an estimated $1 trillion in 2018 alone—is a practice known as share buybacks: firms purchase their own shares so as to increase the value of each individual share and so enrich the existing owners of shares.

When conducted on a large scale in the open market, share buybacks used to be considered illegal as they constituted obvious stock price manipulation. But they were effectively legalized in 1982 by a hard-to-understand SEC regulation: rule 10b-18. As a result, executives of public corporations, rather than creating fresh value and new customers through entrepreneurship and innovation, began extracting value for shareholders (and themselves) by buying back their own shares. The emphasis on generating immediate returns to boost the current stock price in due course created a short-term focus in public corporations at the expense of innovation, long-term shareholder value, and the dynamism of the entire economy.  – Forbes,  July 8, 2018

October Surprise? 

President Trump and the Republicans are getting minimal political traction from the strong economy for the above reasons and headed for a major political facial in the midterm elections.

We fully expect an October surprise, probably in the form of some Potemkin Village-esque trade deal with China, much like the Korean trade deal farce,  for example.

It will be too little, too late, and certainly won’t change the women’s vote.

Contemplate this.  My old Congressman from Greenwich Village,  Jerry Nadler, current ranking member, as the new chairman of the House Judiciary Committee in the next Congress.  Subpoena power galore.  The president’s worst nightmare.

The next Congress is sure to be full of political fireworks and massive uncertainty.    Not priced.