Two Year Employment Review

Trump has largely avoided breaking the employment trends established under Obama

As we reach the end of President Trump’s second year in office, the release of the December 2018 Employment Situation by the Bureau of Labor Statistics provides an opportunity to examine how the labor market has developed under his administration, and compare it with performance under President Obama.  The table below begins with employment data from Obama’s administration – December 2009 and 2016, covering the depth of post-crash unemployment through the end of Obama’s second term – followed by the December figures from Trump’s first two years in office.  2018 is the really first year that can be claimed by, or blamed on, Trump, as it takes at least a year for budget and other policy decisions of a newly elected president to begin having an impact.

 

Obama

Trump

 

12/2009

12/2016

12/2017

12/2018

U-3 Unemployment Rate

10.0%

4.7%

4.1%

3.9%

U-6 Unemployment Rate

17.3%

9.2%

8.1%

7.6%

     

Civilian Noninstitutional Population*

236,924

254,742

256,109

258,888

Civilian Labor Force

153,059

159,640

160,597

163,240

Employed

137,792

152,111

154,021

156,945

Unemployed

15,267

7,529

6,576

6,294

Employment-Population Ratio

58.2%

59.7%

60.1%

60.6%

Part-time for Economic Reasons

9,165

5,598

4,915

4,657

Marginally Attached to Workforce

2,486

1,684

1,623

1,556

  • Discouraged Workers

929

426

474

375

     

* All numbers are in thousands, and are seasonally-adjusted

    

 

Broadly speaking, unemployment declined dramatically under Obama, and has to a large extent continued on that trend under Trump, a conclusion supported by this simple chart; if the years weren’t labeled it would be hard to tell one administration from the other.

U-3 and U-6 Unemployment Rates Under Obama and Trump, Federal Reserve of St. Louis

There are a few differences, though.  The table below compares their yearly averages for the periods above, and we can see that unemployment dropped faster under Obama, and conversely employment has risen faster under Trump.  The difference is that under Obama people still looking for work began finding it again, while under Trump the rate at which people entered (and returned to) the workforce went up.

 

 

Obama

7-Year Average

Trump

2-Year Average

U-3 Unemployment Rate

-0.76%

-0.4%

U-6 Unemployment Rate

-1.1%

-0.8%

   

Civilian Noninstitutional Population*

+2,545

+2,073

Civilian Labor Force

+940

+1,800

Employed

+2,045

+2,417

Unemployed

-1,105

-617

Employment-Population Ratio

+0.21%

+0.45%

Part-time for Economic Reasons

-509

-470

Marginally Attached to Workforce

-115

-64

  • Discouraged Workers

-72

-25

* All numbers are in thousands, and are seasonally-adjusted

  

 

This is not too surprising.  As we’ve been pointing out since early 2017, the labor market was already close to “full employment” when Trump took office, so expansion in the share of adults in the labor force was a logical next step given that none of Trump’s policies in his first year really did much to disrupt the trends set under Obama (regardless of how surprising that might have been).  The comparatively small increases in employment in 2018 can be traced more to the limits in how little slack remains in the Employment-Population Ratio than any particular missteps by Trump; there are only so many people in the economy who want to work (e.g. college, retirement) or are able to do so (e.g. disability) without driving wages up dramatically. That said, 2019 is basically a point where one of three things can a happen:

 

  1. Trends continue, and the tight labor market finally begins pushing wages up as it did during the later years of the Clinton administration.  This will likely result in the Fed pushing up interest rates to cool down the economy (and thus demand for workers) to keep inflation under control.
  2. Things plateau at the current historically low unemployment levels, but wages remain stagnant due to poor bargaining power by workers and a historically disproportionate share of corporate income going to shareholders.
  3. Trump’s trade wars, the government shutdown, and other disruptions, or even a completely unrelated shock (say unrest in the mideast causing a gas price spike) leads to a recession, in which case unemployment levels will dip as usual.  Given that it has been well over a decade since the last recession, this would be relatively likely even without Trump’s tendency to tip things over.

 

It seems unlikely that employment can continue on its upward trend as it has for the last nine years, but then again that was how it looked two years ago.  Perhaps we can dodge the inevitable for another year, though it’s unclear how.

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