Donald Trump was elected because half of America is unhappy about the economy, but the new president is inheriting a labor market that has shown huge improvement in the past few years.
The U.S. has added an average 181,000 new jobs a month in 2016 to nudge the unemployment rate down to 4.9%. Economists predict a similar 180,000 gain in hiring in November in the first jobs report to come out since Trump won the 2016 presidential contest.
With many companies complaining about a shortage of skilled workers, wages are also on the rise as firms bid to attract a dwindling pool of available talent. Hourly pay climbed 2.8% in the 12 months ending in October, the strongest increase since the end of the Great Recession more than seven years ago.
“We are close to full employment,” said Sam Bullard, senior economist at Wells Fargo Securities. “Firms will have to become more generous in their compensation packages.”
All the seeming good news on the labor front, however, obscures lingering problems.
While some Americans have found good jobs at good pay, many are stuck in menial jobs that don’t pay as well. And millions of others who want to work full time can only find part-time work.
A broader measure of unemployment that includes under-employed Americans and discouraged job-seekers also stands at a much higher 9.5%. The so-called U6 rate was around 8% before the last recession.
The percentage of able-bodied Americans in the workforce, meanwhile, is also near a three-decade low and it’s not just because so many baby boomers are retiring. Some younger workers have been locked out of the labor market because of insufficient skills or lack of opportunities in industries that used to used to provide lots of jobs for people without college degrees.
Trump beat Hillary Clinton in large part because disaffected Americans think he can do a better job of improving their own job and income prospects. The New York businessman has vowed to boost growth by cutting taxes, reducing regulation and killing free-trade deals he views as unfair.
After a brief moment of panic, investors have celebrated the full Republican takeover of Washington by pushing stocks DJIA, +0.36% to an all-time high
Even if Trump succeeds, however, the economy might not show much improvement right away. For one thing, it will take time for Congress to pass and implement measures to aid the economy. Businesses might be reluctant to spend and investment until they get a clearer idea of what’s going to happen.
“The lay of the land: uncertain,” said Gregory Daco, head of U.S. macroeconomics at Oxford Economics. “It’s just too soon to tell.”
Some forces unleashed by Trump are already at work that could constrain the economy in the short run.
The value of the dollar just hit a 13-year high, making U.S. exports more expensive for foreigners to buy and enticing Americans to splurge on imports.
Interest rates have also climbed rapidly on the view that the Trump White House will goose the economy and cause inflation to rise. The result: the cost of business and consumer loans such as home mortgages are significantly more expensive compared to a month ago.
Still, there’s clearly a renewed feeling of optimism in the air. Consumer sentiment surged in November after Trump’s victory and buoyant stock markets testify to anticipation. Just don’t expect an overnight change.
“It will take time for positive benefits to the economy to accrue,” Bullard said. “A lot of dominoes have to fall into place.”