Trump has it Wrong

In early April, Republican presidential candidate Donald Trump pronounced that we are heading for a “very massive recession,” warned that we are currently in “a financial bubble,” and said that “it’s a terrible time right now” to invest in stocks.

These comments come while the International Monetary Fund (IMF) prepares to downgrade projected growth yet again, stating that the “fragile” recovery requires “urgent action.” Central banks are studying what exotic tools they have left to avert a recession, and leaders of the top 20 economies recently pledged to deploy “all policy tools, including monetary, fiscal, and structural.”

What are they talking about? Have they looked at the employment picture? This is economics 101, for heaven’s sake.

In most big economies, the unemployment rate is dropping and is back to pre-recession levels in many countries, as it is in the U.S. Yet neither the G-20 nor the IMF acknowledged this. If unemployment is a better indicator of global economic health than gross domestic product, then the current obsession with monetary and fiscal stimulus is misplaced. Growth is being held back not so much by a lack of demand, but by stunted potential due to aging populations and weak productivity.

The U.S. exemplifies the growth-unemployment disconnect. In 2010, President Obama’s economists predicted gross domestic product would grow 3.9% per year from 2010-15. They were too optimistic, as growth averaged barely half of that at 2.1%.

They also thought unemployment would drop from 10% to 5.9%, but here they were too pessimistic. It has fallen to 5% after dipping to a post-recession low of 4.9% for a short time, which represents virtually full employment.

Inflation remains low

Weak demand held back productivity after the recession and financial crisis as companies were reluctant to buy equipment, coupled with the likelihood that employers may substitute labor for capital because wages remain low. The weakness in growth due to productivity helps explain depressed wage growth, and demographics suggests the debate over how to expand monetary and fiscal stimulus seems misplaced.

This doesn’t mean central banks should rush to tighten, as inflation in developed countries remains below target and wages are subdued. Yet if oil stops falling, inflation should move up, and as unemployment keeps dropping, wage growth will follow.

Here in the U.S., and in our construction economy in particular, I wrote recently about the growth in construction employment, and how jobs remain unfilled. Couple that with the U.S. Census Bureau report that shows non-residential construction spending surpassed the $700 billion mark in January for the first time since 2009, and it’s hard to believe the pronouncements from Trump and the central bank leaders.

While fears abound about the economic slowdown in China and the terrorist attacks in Europe and the impact they could have in those countries, the U.S. economy, and the construction industry in particular, is far from a slowdown, much less a recession.

For example, the figures for January were striking: non-residential construction spending expanded 2.5% on a monthly basis and 12.3% on a yearly basis, totaling $701.9 billion. December’s estimate was revised upward from $681.2 billion to $684.5 billion, while November’s was reduced from $683.7 to $680.5 million. Private nonresidential construction increased by 1% for the month, while its public counterpart expanded by 4.6%.

With year-over-year construction spending growing by double digits, coupled with strong employment and vacant job positions in our industry that remain unfilled, I can’t believe that the headlights for our industry are pointed anywhere but uphill.