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Labor market remains strong — but will it last until the election?

“Obama presided over a difficult recovery from a deep recession. Trump was lucky to inherit this recovery and keep it in place,” said one economist.
Image: Donald Trump
President Donald Trump during a campaign rally in Des Moines, Iowa, on Jan. 30, 2020.Charlie Neibergall / AP

President Donald Trump’s penchant for the superlative, such as a grandiose claim during his presidential campaign that he could create 25 million jobs over a decade, could backfire if the labor market slows — and, to the extent that the economy is a report card for all presidents, Trump positions himself as a champion of the American worker.

“Labor market success is crucial to Trump's re-election. It is the place where people feel he has been most successful,” said Harry Holzer, professor of public policy at Georgetown University.

“As long as the economy remains strong, that’s obviously a tailwind for any incumbent,” said Brad McMillan, chief investment officer at Commonwealth Financial Network.

The monthly report from the Bureau of Labor Statistics found that the U.S. added 225,000 jobs in January, far exceeding the expectations of economists, who had predicted 158,000. Friday’s report comes two days after another key job market metric from payroll processor ADP found that the economy added 291,000 private-sector jobs in January, nearly double the 150,000 anticipated.

“It’s only fair to say jobs and job growth are the single biggest determining factor in the economy so in that sense, I think the president, or any president, has to see that creating and keeping good jobs is the key to economic success,” McMillan said. “Certainly, when President Trump claims the economy is doing well, by any objective measure, he’s correct.”

However, if the economy turns south, "Voters blame the incumbent, right or or wrongly, and if it does well, they give the incumbent the credit,” McMillan said.

One positive metric is worker pay. Contrary to the predictions of some economists who said wage growth had probably peaked for that economic cycle, January wage growth rose to an annualized rate of 3.1 percent.

“December’s deceleration in wage growth was an anomaly,” said Daniel Zhao, senior economist at “Employers are still having trouble finding workers. If employer demand strengthens in 2020, we could see wage growth pick up.”

“Several years of fairly tight labor markets, with wage gains running 1 to 1.5 percentage points above inflation, contribute to workers feeling that things are going well,” Holzer said.

That confidence acts as a big driver of economic activity by boosting discretionary spending and reinforcing consumer demand — and that virtuous cycle could give Trump a big boost in November, if it can be sustained.

“When you look at the economy as a whole, about 70 percent of it comes from consumer spending. The overwhelming majority of it comes from job income — people working and people making money is the economy,” McMillan said.

Mark Zandi, chief economist at Moody’s Analytics, which produces the report in conjunction with ADP, said an unseasonably mild January in much of the country was a driver for the larger-than-expected job growth.

“If you subtract from the weather effects, it’s probably closer to 150,000, which I consider close to the underlying rate of job growth in the economy right now,” he said. “If job growth remains roughly where it is, I think we’re in pretty good shape.”

However, some weather-related job creation is likely just pulling forward jobs that otherwise would have been created in early spring, which could mean softer numbers in the coming months.

“January’s jump in payrolls likely will be followed by a significantly smaller increase in February, as favorable weather effects fade and healthcare job growth reverts,” Ian Shepherdson, chief economist at Pantheon Macroeconomics, wrote in a client note.

Even prior to BLS revisions, which found 514,000 fewer jobs were created then had been initially reported, Zandi pointed out that Trump was trailing his predecessor in terms of job growth. Average monthly job growth in the second term of Obama’s presidency was 216,000, while Trump currently averages 193,000.

“Obama presided over a difficult recovery from a deep recession,” Holzer said. “Trump was lucky to inherit this recovery and keep it in place.”