Apparently the rumors of our economic demise were greatly exaggerated. Yes, amid the gnashing teeth of the Wall Street pundits hoping for another lucrative Fed rate decrease, the Main Street economy continues to defy expectations:
“Today’s jobs report shows the U.S. economy continues to create jobs at a strong pace even as we enter the longest period of economic expansion on record.” ~Tony Bedikian, Citizens Bank.
According to the BLS Report – June saw 224,000 jobs added; and importantly the private sector wage growth knocks a very solid +3.2% year-over-year. [Table B-8] You might remember in the May 2019 jobs report 299,000 people moved from Part-Time to Full-Time employment. In today’s report total payrolls added another 224,000 workers.
These are stunningly numbers. The 224k new jobs this month is higher than same month last year (2018). The Main Street economy is continuing to expand. Private sector growth in wages continues to run above 3% for the 11th straight month. Wage Growth is a critical driver because over inflation is around 1.3%. Wage growth is more than double inflation.
Key Point: Economic numbers, statistics, are subject to narrative engineering. Those pushing a negative economic narrative are Wall Street pundits. Wall St. has a self-interest to push negative economic news to get lower interest rates. Lower interest rates means cheap money and a higher stock market.
Having said that we can see why Wall Street doomsaying has an inherent motive. Wall Street wants lower interest rates to make money from borrowing. However, President Trump also wants lower interest rates for a different reason.
President Trump wants lower interest rates to offset Chinese and EU currency manipulation which is intended to keep their exports cheap and battle Trump’s tariffs.
Wage Growth. Private Sector wages grew at 3.2%. [Table B-8]
Overall wage growth of 3.1% is very strong. Private Sector wage growth of 3.2% is even better, and driven primarily by increased wages in “non-supervisory” payroll; ie. the actual workers (non mgmt). June was the 11th straight month with annual wage gains of at least three percent. Wages for non-supervisory workers continue to rise at a faster rate of 3.4 percent.
With inflation remaining low (1.3% in June); and assuming inflation is relatively unchanged in July; the 3.4% non-supervisory wage growth, at current wage rates, is equivalent to over $900 per year in real wage growth for a blue-collar worker at 40 hours per week. In may regions of the country these excellent results are actually the low-end.
There are massive parts of the U.S. where the labor market is so hot wage growth is far higher than the national average. It won’t surprise anyone to hear those areas of highest growth are the same areas where prior economic, trade and manufacturing policy had a negative effect.
President Trump is the blue-collar president.
Since the mid-to-late 1980’s the U.S. economy split into two divergent economic engines. One traditional engine powered by Main Street, and a second engine powered by Wall Street. For thirty-plus years the distance between those engines was growing as federal monetary policy provided low interest rate support for investment, but the end destination for the investment was NOT in the U.S. [Hence, globalism]
For more than 30 years monetary policy has been driven by Wall Street influence. FED interest rates made borrowing cheap, but the money -the actual investment itself- flowed out of the United States. The end product from the investment, steered by multinationals, created products overseas. Within this flow of capital there was no benefit to Main Street.
President Trump’s America-First policy has reversed the dynamic. As a result of his focus and demand, the end product(s) from capital investment are now here in the U.S.A.
The MOUSE is money or investment. The CHEESE is end products, manufactured stuff.
Rather than beg the Wall Street investment mouse to change direction in the manufacturing maze, president Trump has simply moved the cheese to Main Street. The mouse’s travel changed accordingly.
The price index for gross domestic purchases increased 0.7 percent in the first quarter, compared with an increase of 1.7 percent in the fourth quarter (table 4). The PCE price index increased 0.4 percent, compared with an increase of 1.5 percent. Excluding food and energy prices, the PCE price index increased 1.0 percent, compared with an increase of 1.8 percent. (link)
As companies reevaluate the best place for investment (highest return), and they see that Trump’s policies (corp taxes, tariffs, material and labor costs) focus on greatest benefit being inside the U.S, then companies return to Main Street. This is what has been happening since Trump took office; and it continues through today.
The prices of highly consumable goods (food, fuel, energy) is kept low by Trump policies that increase energy production and return a genuine supply-side dynamic to domestic production prices. [The battle with Big AG]
Meanwhile multinationals, and some foreign governments, fight to keep their footing abroad (original investment) by keeping down the price of durable goods manufactured overseas. This is done by increase productivity, adjusted supply chains and retention incentives afforded by the benefiting nation. This is done to offset Trump tariffs which are designed to influence a shift in the manufacturing process.
The end result of both production dynamics, domestic and abroad, is low inflation.
This price dynamic is happening at the location of output, internally to the operations that are determining the output price, based on their determination of what U.S. market prices will absorb.
Key Point – The pricing is NOT a result of decision-making on new investment; and therefore the pricing dynamic is not able to be impacted or influenced by FED monetary policy.
Only when the majority of manufacturing investment fully returns to the U.S. will FED policy have any significant bearing on manufacturing prices. This is the parity point where Main Street’s economic engine is recoupled to inflation.
There was 30 years of distance in the FED disconnect, and it will take more than a few years for the recoupling of Main Street to FED monetary policy.
We are the elites now!