This morning the Bureau of Labor Statistics released the final employment situation report of Barack Obama’s term as president, revealing that the American economy added a net of 156,000 jobs on a seasonally adjusted basis. It was, like most of the past several years’ worth of jobs reports, a pretty thoroughly average one — one that is in many ways entirely unworthy of the tumultuous political situation that serves as its backdrop.
It means that as Donald Trump takes over the steering wheel of the ship of state, he finds himself in an unusual position for a new president: The economy is fine.
It’s not great, it’s not amazing, it certainly features lots of pockets of serious problems, and it’s certainly possible to raise concerns about generations-long trends. But in a basic, brass tacks, short-term sense, it’s fine. Obama took office in the middle of a three-alarm economic emergency, featuring hundreds of thousands of net job losses a month. George W. Bush took office in the midst of a stock market crash, a series of unraveling fraud scandals, and a recession that, while relatively mild, was nonetheless quite real and painful. The unemployment rate when Bill Clinton got elected was 7.4 percent — up 0.4 percentage points from where it had been a year ago — and it was 7.5 percent when Ronald Reagan won.
You have to look to George H.W. Bush (5.3 percent and falling) to see a comparably benign climate greeting the election of a new president. But, of course, Bush ran and won largely promising continuity with his Republican Party predecessor whereas Trump has promised a sharp break with Obama’s policies.
One reason that it’s unusual to see a new party take over during such a relatively benign economic climate is that it’s also unusual for the candidate who wins the election to get 2.5 million fewer votes than his main opponent and have an underwater favorable rating. But there are also a lot of black flies in the chardonnay of the Obama economy — which added jobs at a decent clip but never experienced strong “bounce back” from a disastrous recession, featured consistently sluggish wage growth, and saw a broad decline in labor force participation.
Trump says he can do better. Here’s a look back to help set a baseline and see if he can do it.
The Obama labor market by the numbers
Economic data is collected on a month-by-month basis, and presidents take office inconveniently in the middle of January. But since January 1, 2009, the United States has:
- Added an average of 66,000 jobs per month, a distinctly unimpressive number due to the massive job losses in the first 18 months of his tenure. In Obama’s second term, the economy added 211,000 jobs per month.
- Increased average hourly wages by $4.
- Had the unemployment rate fall from 7.8 percent to 4.7 percent.
At the same time, the employment to population ratio — the share of employed people relative to the overall population — fell 1 percentage point and remains well below where it was before the Great Recession and even further below where it was at the height of the 1990s stock market boom.
A very large share of this, however, is accounted for by demographics. Older people are much less likely to work, and the population is getting older. If we restrict attention to “prime age” workers between the ages of 25 and 54 we see that the ratio has risen somewhat under Obama, though it still remains below where it was when the recession first struck.
The United States is, of course, a very large country, and there has been a considerable amount of unevenness in the state of the economy. Regional variation surely plays into the political system somehow or another. But contrary to some post-election myth-making, there’s little sign that the labor market is especially weak in states that were crucial to Trump’s election.
The 5.7 percent unemployment rate in Pennsylvania, for example, might have something to do with his narrow victory in a key Hillary Clinton firewall state, but the place with the strongest Obama-to-Trump swing was Iowa, whose 3.8 percent jobless rate is well below average.
Trump will struggle to surpass Obama’s rate of job creation
The upshot of all of this is that as long as present trends roughly continue, Trump is set to easily surpass Obama’s levels in terms of American living standards.
On the campaign trail, he made a lot of hay out of the factoid that inflation-adjusted median household income was still below the 1999 peak, arguing that this meant Americans “hadn’t had a raise” in almost 20 years. In fact, the Census Bureau definition of income that this talking point is based on suffers from a variety of flaws (notably including the way it ignores the rising share of retirees in the population) and the typical family is almost certainly better off today than it was in 1999. But statistical quibbles aside, it would only take a very small improvement in the Census numbers for Trump to be able to announce later this year that median household income has reached an all-time high.
Meanwhile, little attention was paid this fall when median wages for full-time workers reached their all-time peak, a level from which they have subsequently continued improving, but getting people to pay attention to flattering information seems like the kind of thing Trump will likely be very good at.
Where Trump is going to struggle is to match the rate at which the economy has been improving since the labor market bottomed-out in 2010. And this matters a lot politically. The closer an economy gets to full employment, the slower we would expect to see it add jobs.
The Obama White House’s Council of Economic Advisors has a chart that shows this in action already, with the 12-month moving average of job creation trending downward throughout the past year.
Of particular note in this regard is the Federal Reserve. The Fed dropped interest rates down to zero during the financial crisis, and then proved willing — but, crucially, somewhat reluctant — to engage in additional extraordinary measures like quantitative easing to boost the economy.
Under those zero interest rate conditions there was an opportunity for things like fiscal stimulus or trade policy to boost aggregate demand and create jobs. At the moment, however, though interest rates remain low, the Fed is in the process of raising them in response to an improved labor market. In effect, this means Janet Yellen and her colleagues are putting a ceiling on demand-side job creation.
To accelerate growth, Trump would need to improve the economy’s overall productivity. That certainly might happen, but nobody is really sure how to pull it off, and Trump is committed to ideas like trade wars with China and Mexico and a stepped-up pace of deportations that are likely to accomplish the opposite.
Wage gains are the great hope
Employment gains will likely slow down as the economy reaches full employment. On the flip side, workers who already have a job should see greater bargaining power. That could mean more rapid growth in the average hourly wages that employers need to pay.
Indeed, a trend in that direction already seems to be underway, with wage growth picking up over the past year.
The Fed is a constraint here, too, in terms of how much faster they will allow wages to rise. But Obama’s average on this score is fairly dismal, and all Trump needs is steadiness to outdo the Obama average.
Of course, there might be a recession
On the other hand, as Josh Zumbrun argued in a pair of Wall Street Journal articles published in October, there are decent odds that Trump will find himself presiding over a recession.
The current expansion cycle, which began in June of 2009, is the fourth-longest on record. If it were to extend all the way until Election Day 2020, it would be the longest one ever. Which is exactly why most economists surveyed by the Journal expect it won’t happen.
That’s not because the economic expansion will necessarily “die of old age” simply for having gone on a long time. The issue is simply that in any given year there is some chance of a recession, and the economy isn’t going to dodge those odds forever.
Specifically, according to the San Francisco Fed, there’s about a 23 percent chance of a recession in any given year. That adds up to a 65 percent chance of a recession happening at some point during any given four-year span. That math tells us nothing about the likely depth or severity of any such recession or the speed with which the economy might bounce back. But the risk that one could happen, though largely neglected at the moment, is very real — and if it does, it would likely ruin Trump’s chances of improving on his predecessor’s economic record.