Economists expected a net new job creation of 200,000 in March. Instead it was 50 percent more. Unexpected strength, but perhaps not so unexpected for an economy that continues to throw up surprise after surprise. For economic optimists, it's been a big success lately: real wage increases, higher labor productivity and lots of jobs.
A succinct summary from RSM economist Joseph Brusuelas of what Americans are experiencing right now:
The employment data has been consistent for some time with what we call a 3-2 condition – when the unemployment rate remains in the 3% range, below 4% and inflation is in the 2% range. Improved productivity, healthy immigration and an appropriate Federal Reserve policy mix can create the conditions for strong growth, price stability and maximum sustainable employment.
So what's not to like?
- In the short term, high inflation is still a problem. It remains persistent, fueling fears of a possible resurgence, as was the case during the Great Inflation of the 1970s. As for the Federal Reserve's 2 percent inflation target, Chairman Jerome Powell has acknowledged that the final step toward that goal could be a bumpy ride. But he also points out that the solid pace of economic growth gives policymakers the flexibility to respond to new data. As Capital Economics argued in a morning note: “The huge 303,000 increase in nonfarm payrolls in March reinforces the Fed's position that the resilience of the economy means that there will be rate cuts that may now only begin in the second half of this year.” “It could take a while.”
- Three consecutive quarters of strong productivity growth is good news, but it is still too early to assume that we are seeing a sustained recovery. What we are seeing may be more about post-pandemic normalization, such as unraveling supply chains, than the impact of new technologies such as artificial intelligence. Washington should think carefully about what policymakers can do to build on recent achievements, such as investing much more in scientific research, allowing reforms, and taking a slow approach to AI regulation.
- Sorry to be a Debbie Downer when it comes to debt and deficits, but CBO projects that the national debt will nearly double to $48.3 trillion by 2034 and the debt-to-GDP ratio will reach 116 percent from current levels 97 percent. Although tax revenues are above the 50-year average, spending is expected to exceed historical levels, primarily due to…wait for it…entitlement programs like Medicare, Social Security and Medicaid. (Oh, and these projections may be optimistic, since they assume no recession, no expiration of tax cuts and subsidies, and no additional spending or debt relief efforts.) Growing deficits will increase interest payments, outpace defense spending, and reach $1.6 trillion by 2034 to reach. If this all seems untenable to you, you're not wrong. A big productivity boom would be helpful here, but we shouldn't count on it. Not the CBO.
All in all, I'd rather be in a position where I'm looking for weak spots in an expansion than sitting in a recession looking for a silver lining.
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