Trump Says the Jobless Rate is Phony. Try These Stats Instead

with me today. Here in d C. Is Vince Gully, a fellow editor who's been covering the U S economy for two decades, and up in New York we have Carl Ricka Donna, who's chief US economist for Bloomberg Intelligence. Gentlemen, thanks for joining us today. My pleasure, glad to be here now. Often on Benchmark we dig up unusual facts or indicators to make a broader point about trends in economies around the world. Today we're going back to basics.

It's our first show since Donald Trump took office as forty president of the United States, and since Benchmark is all about the economy and Trump has pledged to make America great again, We're going to attempt to answer the question just how will we know from an economic standpoint if Trump is actually making America great again. Now, the President has dismissed some traditional measures of the U. S economy,

such as the main unemployment rate. He called that measure phony or fictional because he thinks it overestimates strength in the labor market. So we're going to run down some other economic indicators today. These are a bit more out of the mainstream, maybe a bit down in the weeds, but we think they'll show a good sense of the degree of the success of the Trump administration during the

next four years. Uh So, obviously we're not going to talk about unemployment or GDP, and instead we'll give you first two ways of looking at the labor mark market, then two ways of looking at the health of corporate America and small businesses, and also one gauge of whether if Trump is fulfilling his pledge to bring factory jobs back to the US. So are you ready, guys, ready, let's go all right, So, without further ado, here are the first two. The first is called prime age labor

force participation. Now translate into English from Ecano speak, we can say that is people in the peak of their working years who have a job or are looking for one, and the second one would be full time workers as a percentage of the labor force. That refers to people who have a full time job as a share of everybody who has a job or is looking for work. Vince, let me go to you first. Why are these good gauges of both the economy and for Trump schools? Well,

Scott Um. Probably in the simplest terms, I'd say that it boils down to potential. UM. People in this twenty five to fifty four age bracket working a full week have the best potential to gain work experience, UM, secure better benefit packages like healthcare and four win K plans

that allow them to prepare for retirement. And perhaps most importantly, they have greater earnings potential and they have the ability to grow their earnings earn more, which contrasts with UH, say teenagers who are more likely to work for minimum wage. And the reason this is important is that, UM, these are the folks who are most likely to spend, and they'll probably spend big, whether it's buying a new car

or house or what have you. UM the more potential to earn a good living will allow them to spend and that in turn boost the economy and encourages more hiring and more spending, and you get this sort of virtual circle for the economy. Corrow, what's been going on with primate labor force participation in recent years and why is it cutting criticism from Trump and his team. Well,

the participation rate goes through longer term structural fluctuations. So it climbed from the ninth late nineteen fifties up until about two thousand UH. This was partly a phenomenon of the baby boomers coming through the system. Also, while women entering the workforce in increasingly large UH proportions. About the time of two thousand UH, the participation rate peaked and began to decline. At the time of the two thousand and seven to two thousand and nine recession, the Great Recession,

it actually accelerated the pace of decline UH. And so the question is how much of this UH is really due to long term structural trends in the economy. If we think of the baby boomers going through the system like that python that swallowed an egg or some large objects, so part of that is just an inevitable trend. But the question is, UH, this acceleration since the end of the Great Recession, and a lot of economists are wringing their hands saying there's no way to forecast labor participation

and whatnot. And I think that if we take a step back and take a very straightforward, common sense approach, there is a way uh to actually model that out, at least to some degree. And we can do that by looking at economic conditions or getting back to the uh UH prior comment the prospects of earning a good living. UH. The health of the economy and strength of the economy impacts how much workers are moving off of the sidelines and into the economy. So over the past UH seven

uh ten years, economic conditions have not been great. Wage stagnation has been a big problem, and the job prospects have not been particularly strong. UH. And this means that a lot of would be workers have remained on the

sidelines UH and that has taken a toll on participation. Now, what Janet Yelling, Chair of the Federal Reserve, and UH some other economists also on the Open Markets Committee UH want to do is explore the potential of pursuing a high pressure economy, as she terms it, or as New York Fed President Bill Dudley mentions letting the economy run a bit hot. Uh, And what they mean by this is by letting the economy exceed its growth rate and being slow to push back with the monetary policy or

interest rate policy. Uh, they can actually lead to a pickup in inflation and wage pressures, and that will coax folks off of the sidelines and possibly bend the trend uh in terms of declining labor force participation. Now, this is not something they completely can fix, but at the

margin they can influence it. Now, how do you square the ability to get people off the sidelines, Say, if you know the Fed supports accommodative policy, or if trumpettacts fiscal stimulus with the idea that you know, I've read these articles about one. You know, some of the reasons why you have such a downturn and primate participation is because maybe the prevalence of drugs, people on pain medication. Uh, you know, men in their twenties and thirties playing too

many video games. Is an improving economy enough to reverse trends that are maybe more baked into the economy at this point, I think an improving economy is a critical part of the picture Now, opioid addiction and a lot

of other factors certainly do extend a toll. But if you're let's say, for example, you're sitting on your couch playing video games or watching movies UH and collecting maybe an unemployment check or maybe a welfare check or disability payment UH, and suddenly you see your your your neighbor across the street is buying a new car or renovating

their home or taking a nice vacation. UH. That type of UH, for lack of a better term, envy UH coaxes people to say, well, the welfare check is good enough, but I'd like to do a little bit better, and I'm willing to re enter the labor force. So you know, in some sense there are people that will not be

able to re enter. But in a lot of instances, for example, in a dual income household, one parent maybe choosing to stay home UH to oversee childcare rather than take a job that barely pays for the cost of UH sending their children elsewhere full rock childcare. Now, let's talk about the other indicator. I was discussing the share of full time workers out of the labor force. You can talk all you want about improving economy, getting people

off the sidelines and into the labor force. But if those jobs are not the kinds of full time, good paying jobs that Vince was talking about. Uh. You know, one criticism we've heard from Trump and and and also a lot of other economists about the economy in recent years is that a lot of jobs that have been created are actually either part time in services and low paid, or they're in the gig economy with the rise of

such services as as uber. As we're all well aware what's going on with the state of full time and part time work, are there a lot of people Vince who who are working part time who would rather have full time jobs? Um? Well, we have seen um some of that uh people that are working part time uh that won a full time job. We have that, uh seen that start to reverse here um lately, So I think there is some improvement there. UM And a lot of the um, A lot of this too, UM you

could probably attribute to a service economy. And um, some people just want to work part time and not worry about having work full time position. I know UM that President Trump has mentioned the cost of childcare needing to come down, and UM, a lot of you know, a lot of housewives, if you will, are choosing to stay home rather than uh, than than go seek a full time employment. Carl, how do you see this playing out?

Are are we going to see more UH people getting full time jobs or or is the trend toward more part time work? Uh? You know something that that's just effective life now, Well, I think we have two trends moving in opposite directions. With the advent of the gig economy and task grabbit and Uber and all these sorts of things, UH, the availability of part time work becomes UH significantly elevated, so that that will be a longer term trend. But what we watch more closely as economists

is part time work for economic reasons. So this is not someone who's driving Uber on the weekend for a little extra cash. But these are workers who can only find part time employment, although they would prefer full time employment. And if we watch that trend, and this is something again that that Cher Yelling has referenced at the FED. UH, this is UH moving in the right direction but not fully normalized. So UH, in a in a very odd sense, cheer Yelling and President Trump are on the same page

in questioning the signal from the national unemployment rate. Cherryoh, and long before President Trump was criticizing the unemployment rate, that was making the same point, saying that that is an incomplete measure of conditions in the labor market, and so instead she looked at these other broader measures, one

of which was part time workers for economic reasons. Yeah, Jannah and Donald are probably gonna find some common ground the next time, you know, when they actually have their first meeting together, despite uh Mr Trump's criticism of her during the campaign. Let's move on to another indicator. This one doesn't need much of much deciphering. It's the number

of manufacturing workers on payrolls in the economy. A lot of Trump's campaign was about how NAFTA and China have killed all these jobs over the last twenty years and how he would restore them. Carl, what are the chances that this is going to happen? Well, some of the jobs are are gone and certainly are not coming back. We are moving, uh, you know, in an increasingly automated

assembly lines. I've been reading recently about some assembly lines where they don't even turn the overhead lights on until something needs to repair because there are are basically only robots who are happy to work in the uh, in the dark, on those assembly lines. So uh, to some degree, a lot of the manufacturing jobs that you imagine uh, your your, your father, grandfather working at are probably not

coming back. However, if we are sourcing more production in US factories, there will be an impact on manufacturing jobs. So some jobs will come back. Uh. And the general rule of thumb is that for every one manufacturing job, there's about three service sector jobs that support it, whether it's engineering, design, transportation, finance, etcetera. Uh. Uh So even if we bring back some manufacturing jobs, that will have

a very powerful impact. Now I hear time and time again, well the jobs aren't coming back, so what's the what's the point in pursuing it? There are tremendous economic benefits uh to manufacturing activity happening on US soil. So yes, there's a question mark over how many jobs will actually

come back. But innovation happens on the shop room floor. Uh. And so if the vehicles uh and widgets are being assembled on US soil, UH, then the engineers and the design folks and all of that other higher level sophisticated doubt work tends to happen in close proximity to the factory. So when the factory moves overseas, it's not long until

the engineering, design, and management jobs tend to follow. UH. And so there's an intend will benefit uh much much more comprehensive than just the actual job count from sourcing production back on US soil. So we're at just over twelve million manufacturing jobs right now. You don't really see that moving a whole lot, but it could it could go up. What are you thinking. I think it could trend higher depending how aggressively President Trump pursues the initiative

of sourcing production. And uh, you know, we're only a few days into the new administration, but based on the tone of the inaugural address and some of the measures he has emphasized early on whether it's uh, you know, restrictions on manufacturers from reimporting partially manufactured goods to uh trying to pressure pipeline construction to use US UH manufactured materials where possible. Uh, it seems like it's going to be a very high priority item for the for the

new administration. And mind you uh, you know, what we've seen just in these first couple of days are already likely the beginnings of the re election campaign for twenty twenty. President Trump's path to the White House largely went through

the rust belt Pennsylvania, Ohio, Michigan, Wisconsin. And if he wants to return to the White House in uh, he's going to have to perform well in those states and those uh disenfranchised workers who feel like they've been roadkill on the path to globalization, that have to feel that they have gotten some kind of benefit out of this administration. All right, well, let's move on to a broader indicator of corporate America and American business. That would be capital spending. Vince.

When we talk about capital spending, what does that refer to and what's been happening with that in the last few years. UM. It's basically spending by companies on like plants and buildings and UM equipment, machinery. And from the last part of fourteen through uh this last year's third quarter, it's been averaging a basically a paltry uh, you know, zero point two percent UM on average UM. Now, part of this is owed to the slowdown in the oil patch,

but not all of it. And on the flip side, when when the energy industry was spending hand over fist at the start of the recovery, investment was spending pretty nicely now UM As for small businesses UM, it's a little difficult to measure, but the National Federation of Independent Business Data UM show that until recently optimism has been fairly tepid, certainly well below the levels leading up to the last recession. And part of that is due to this dud to economic recovery, and UM, you know, a

good devil. A good deal of it can probably be attributed to government policies, you know, from you know, Obamacare to government regulation. They've they've actually mentioned that UM in in the surveys that the n f i B does UM. More recently, however, the UH the gauge, the NFIBS gauge of optimism has shot up in this last report, but actually by the most since nineteen eighty. Now small businesses

are liking what they hear from the Trump administration. They just want less government intrusion and a clear path through doing business. So obviously it hasn't it's been kind of UH seen kind of poultry gains in recent years, but optimism is picking up. Carl, is that going to be enough to translate into higher spending that actually boost GDP. Well, the jury is still out on that question. So absolutely,

animal spirits are a critical element of capitalist system. So if everyone's feeling depressed, uh in assaulting away their paychecks into savings, that can have dire economic consequences. Uh. Since election Day, we've seen a significant rise in household sentiment, home builder sentiments, small business sentiment, even other broader measures

of economic sentiment like the stock market for example. However, we haven't seen much hard data yet to support that, and that's because economic data is released with a lag. That being said, uh, you know, vehicle sales were strong at the end of December, retail activity seem to end the year on relatively solid footing. So there seems to be some evidence uh that positive sentiment is actually impacting the economy, but again it's still very much in the

early stages. Let me give you a term net business births. It sounds kind of odd, but it's just another way of saying the number of businesses that are created in a period, uh, minus the number that closed. It's another indicator about of the health of the economy. Uh. You know, as we can look at it under President Trump. Vince, why did we pick this one and what's been happening with that lately? Simply because you know, new businesses are

basically the lifeblood of the economy. I mean, you have a new business created, they're successful, they hire, they get even more successful. The more hiring will do UM. After the recession ended in two thousand nine, UM, it wasn't until a year later that business birth actually exceeded the number of you know, firms that went out of business. UM currently net burs or about where they were during the last expansion, but they're well below the peak that

we had in two thous and five. So I think that a pick up in UM, you know, company formation will likely depend on how successful you know, Trump and Condress are in making it easier for entrepreneurs to do business. And Carl, how important would this be to to drive

the economy? Oh, it's absolutely critical. So business births tend to be among small and medium sized businesses, which account for the vast majority of jobs in the in the private sector, I think roughly eighty five percent are attributed to firms of five employees are less. Uh. Now, you know business births and UH also business investments so two themes that de Vince was hitting on both tend to be late cycle components of the economy. So early on in cycles, we tend to see UH growth driven by

things like a consumer spending and housing. And then later on in the cycle, with the economy continuing to row, businesses start to face capacity constraints and so they invest in the equipment and software and structures that Vince was highlighting. That also tends to be the stage where we see more formation of businesses as folks are more confident uh

in the overall economic outlook. So the fact that we're seeing both of those measures kind of only normalizing UH, now we're starting to pick up maybe some clues that this cycle is going to be unique and that it is going to be much longer uh than the typical UH post World War two or even in the modern era business cycle in let's say UH present if we can call that the modern era so UH in FED terms, that's vocal green Span, Bernankey and yelling business cycles have

averaged about UH thirty two quarters were in the thirty first quarter of the current cycle. So by that measure, you would say a wow, UH. The next ro session can't be too far off. But when we start to look at underlying fundamentals, like what's driving the economy or where are the late cycle indicators? Have they engaged yet? Uh, They're not really there, and so this economy is not as long in the tooth as a pure calendar based

measurement would otherwise suggest. So Carl, taking a big step back and thinking about what you just said there and what we've been talking about, what are the chances that President Trump can fulfill his promises to make America great again in the next four years? Well? Uh, you know this is gonna be a an economist answer, but it really depends on how you want to measure that. So

will GDP growth be stronger? I know you said we can't talk about GDP at the start, but if we are, you know, financing significant tax cuts and infrastructure spending by borrowing more than that is a cheap sugar high. Uh, that can elevate economic growth until it comes around to actually paying the bill. So you know, there could be a short to medium term acceleration in the pace of

growth purely for that reason. The unemployment rate. I'm gonna break all the rules you said we can't talk about unemployment. The unemployment rate is uh, you know, running below it's a natural level. UH. And so you know, we're starting to see increasing evidence of shortages of workers, which will mean workers have greater bargaining power uh, and more wage pressure and and wage creation as a result. So from

that perspective, it's also going to look better. So you know, part of the economy or the country feeling greater, uh is just the you know, the the inevitable result of stretching on and prolonging the recovery from a very severe economic downturn. On top of that, then the icing on the cake will be things like trade uh policy which could favor the rest belt states, and tax cuts which could to help certain sectors of the economy. So in some context, yes, I don't see a recession coming for

quite some time. So uh. The uh, the tone and temperament of the economy will feel significantly better in the next several years, in some part due to the new administration and some part just due to where we stand in the cycle. All right, Carl, we'll have to leave it there. Thanks so much for joining us, my pleasure,

and Vince, thanks thank you for joining us too. For more on this you can actually call up a graphic we put together that you can find on Bloomberg dot Com called how We'll know if Trump is making America great again? And Benchmark will be back next week. Until then, you can find us on the Bloomberg Terminal and Bloomberg dot Com are newly revamped Bloomberg app, as well as

on iTunes, pocket casts, and Stitcher. While you're there, please rate and review the show so more listeners can find us and let us know what you thought of the show. You can follow me on Twitter at at scott Landman. Carl you are at reckon Omics R I C C A N O M I X, and Vince you are at double spelled out T Goalie in support of my alma mater, Texas Tech University. All Right. Benchmark is produced by Sarah Patterson. The head of Bloomberg Podcast is Alec McCabe.

Thanks for listening and we'll see you next time.