Tag Archives: jobs

Not a Good Jobs Report – And Firing the Messenger Will Not Help

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Chart 1

Update – August 5, 2025:  In the initial version of this post, I mistakenly said that businesses are required by law to participate in the Current Employment Statistics (CES) survey of the Bureau of Labor Statistics (BLS) – the survey that the BLS jobs numbers are based upon.  This is not correct.  While participation is required in certain states under state laws, there is no federal law on this.  The post below has been corrected to reflect this and has added material on the participation rates.  

On August 1, the Bureau of Labor Statistics (BLS) released its estimate of net job growth in July.  The news was not good.  Net job growth in July was just 73,000, where growth in the number of jobs in health care and social assistance alone came to 73,300.  That is, net job growth for everything else was essentially zero, indeed negative.

But more surprising and concerning than the disappointing growth in July, the updated BLS estimate of total job growth in May was reduced by 120,000 to just 5,000, while the estimate for June was reduced by 133,000 to just 14,000.  The initial job growth estimates for May and June were a healthy 139,000 and 147,000, respectively.  Now, both figures are close to nothing.

Revisions to the monthly job estimates are both automatic and routine.  The BLS always revises the estimates for the most recent two months as each new monthly report is released, as it updates its estimates based on more complete data sent to it by employers who are covered in its Current Employment Statistics (CES) survey.  The CES sample includes approximately 121,000 businesses and government agencies at approximately 631,000 individual worksites – covering a total of about one-third of all nonfarm payroll jobs.  The BLS estimates then rely on timely reporting from these employers.

Participation by employers who have agreed to take part in the survey is high.  While not mandated by federal law (although it is in certain states by state law), approximately 94 to 95% who have agreed to be part of the survey then respond by the time of the final release of the employment estimates (based on response rates over the past year).  But not all respond immediately, and some cannot.

The figures reported are of the number employed by the establishment at some point during the payroll period that covers the 12th day of each month.  These are reported along with figures on the compensation paid by the firm (in dollars) and the total hours worked (and separately the total overtime hours worked).  The firm will not know what these will be until the payroll period is over.  If the payroll period is one week, or even usually two weeks, the firm should be able to file its report (which is normally done online) in time for its data to be included in the initial estimate of employment that the BLS issues each month.  But if the payroll period is for the full month, then by definition the BLS will not have that firm’s data in time for its initial employment estimate of that month.  The BLS thus issues a revised estimate the next month, and then also the following month, as further data arrives.  This is all standard.

The BLS does, however, arrive at an estimate each month for total employment – despite still having only partial reports from its survey – by imputing values for the missing data based on past patterns and relationships.  On average those initial estimates are very good, with the later revisions sometimes higher and sometimes lower.  The average revision since 1979 has been less than 0.01% of the number employed.  In absolute value terms (i.e. in terms of just the revisions themselves, not whether they were positive or negative), the average revision was a still very small 0.05%.

The BLS thus updates its job estimates for any given month at the time of its next monthly report and then again at the time of the monthly report after that, based on the more complete reports it has received by then.  There is also an annual revision of the monthly figures, issued each January, based on updated control totals for overall employment and its composition broken down by such factors as the size of the firm, the sector, and so on.  These control totals are obtained from periodic census information.  The process followed for that annual revision was described in an August 2024 post on this blog.

All this is standard and routine, and follows a methodology that was developed years ago.  Furthermore, it is automated and done by computer, with only a cursory review of the numbers by staff at the end.  The BLS is also fully transparent on the revisions it makes.  One can find on this webpage on the BLS site all the monthly revisions (from both the initial estimate to the second, and from the second to the third), month-by-month, back to January 1979.

Trump paid no attention to this.  Faced with the reality of disappointing jobs numbers for the last several months, Trump decided that the best course of action was to shoot the messenger.  He fired the well-respected and professional head of the BLS, Dr. Erika McEntarfer, asserting (with a clear lack of understanding) that McEntarfer was somehow manipulating the numbers for political reasons.  Trump had also asserted in August 2024 that the BLS under Commissioner McEntarfer had manipulated the annual revision of the benchmark control totals released at that time (which happened also to be a downward revision).  The control totals are released every August, prior to the detailed sectoral and monthly figures then released in the coming January.  See my August 2024 blog post on that episode.

Trump also does not understand that the revisions – while significant – are far from unprecedented in size.  The chart at the top of this post shows the revisions to the monthly figures (defined as the difference between the third estimate and the first, with the sole exception for the June 2025 estimate which is between the second estimate and the first), as a share of the overall number employed in the economy.  It is shown as a share of total employment in order to make meaningful comparisons over time, as there are now 80% more employed in the US than there were in 1979.  The figures for May and June 2025 are shown in red at the far right in the chart, although the red may be hard to see.

The first thing to note from the chart is how small the revisions mostly are, especially over the last quarter century.  Unless there are major economic disruptions underway or soon to be underway (such as from the Covid crisis in 2020 and the recovery from it in 2021, from the 2008/09 Great Recession, and earlier in the years at the end of the Carter presidency and the first term of Reagan, when the economy went through two separate recessions), the range of the revisions is almost always well less than +/- 0.1% of the number employed.  This is extremely small.  Keep in mind that the BLS arrives at its estimates of total employment each month from a zero base, where it asks its (rather large) sample of business establishments how many people they currently employ.  The estimates are not based on a survey asking, for example, what the change in employment at their establishment may have been.

The May and June 2025 revisions were reductions in estimated employment of 0.075% and 0.083% of total employment, respectively.  These were major revisions, but certainly far from unprecedented.  Plotting the revisions onto a histogram with bins of 0.05%, we have:

Chart 2

The May and June revisions fit into the -0.10% to -0.05% bin.  There were a total of 37 monthly cases that fit in that group in the 558 months from January 1979 to June 2025, and there were also 27 monthly cases where the reductions were greater.  That is, revisions similar in magnitude to, or greater than, those in May and June have happened in about 11% of the monthly cases since 1979.

There is no evidence that the BLS or its head Erika McEntarfer somehow manipulated these estimates to arrive at figures that Trump did not like.  Indeed, it would probably be impossible, given how automated the process is.  That does not mean, however, that a new Trump appointee to head the BLS would not be able, over time, to redesign the process in order to give Trump something closer to the numbers he wants.  This will need to be watched closely.

Until recently, the first groups that would be advised of any changes in its methodology that the BLS was considering would have been two advisory panels of outside professionals.  The panels were made up of individuals from universities, research institutes, and private businesses, who were impartial professionals and were not paid (other than for travel expenses).  Those panels – the BLS Technical Advisory Committee and the BLS Data Users Advisory Committee – were, however, dismissed in mid-March by the then new Trump administration.

There were concerns when the panels were dissolved that the Trump administration had plans to politicize the process by which basic economic data is gathered, with the aim of ensuring only flattering figures are released.  The firing of the Commissioner of the BLS appears to be a further step in that process.

Real Wages of Individuals Under Obama, Trump, and Biden

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There have been repeated assertions by Trump during the presidential campaign (as well as by Vance in the October 1 debate between the vice presidential candidates) that people’s wages were higher under Trump than they now are under Biden.  What has in fact happened?

The chart above shows how indices of the real wages of individuals have moved during the last two years of Obama’s presidency, the four years of Trump’s presidency, and Biden’s presidency through to August 2024 (the most recent data available as I write this).  There is much to note, but first a few words on the methodology.

The primary data comes from the “Wage Growth Tracker” website provided by staff at the Atlanta Fed.  It makes use of data generated as part of the Current Population Survey (CPS) of the Bureau of Labor Statistics.  From the way the survey is designed, they can obtain data on the wages earned by each household member at a point in time and again for that same individuals twelve months later.  From this raw data, staff at the Atlanta Fed calculate for the individuals in the matched households how much their wages changed over those twelve months.  Since the CPS also collects information on the individuals themselves, they can also then determine what the average (as well as median) changes in wages were for individuals grouped by various characteristics, such as age or gender, race, education, occupation, and more.  The chart above shows both how real wages changed for workers as a whole, as well as the changes with wage-earners grouped by quartile of wage income, from the lowest to the highest.  The figures shown here are for the medians in each category.

The Atlanta Fed wage data goes back to December 1997, is presented in terms of the 12-month percentage changes, and is in nominal terms.  I converted the data to real terms based on the change over the same 12-month periods in the overall CPI (formally the CPI-U, produced by the BLS), converted this to an index number, and then rebased this to set January 2021 equal to 100.  The result is the chart at the top of this post.

In interpreting these figures, it is critically important to recognize that they reflect what households actually experience in terms of the changes in their individual wages.  This differs from what one will normally see when reference is made to changes in mean (i.e. average) or median wages.  The figures in the chart track the experience of individuals, and individuals will normally see their wages start relatively low – when they are young and inexperienced – and then grow over time as they gain skill and experience.  That is the normal life cycle.

Statistics on wages as normally presented, in contrast, measure not what the experience is of individuals, but rather movement in the overall mean or median wages of all those in the labor force at the time.  Changes in such wages will normally be less than what one observes for individual wages, as the labor force is dynamic, with young people entering (at normally relatively low wages) while older people retire and leave the labor force (at normally relatively high wages).  This will reduce the measured growth in average wages as higher-wage workers have left while lower-wage workers have entered.  While this change in the average wage of all those employed at each point in time is a useful statistic to know, it does not reflect the lived experience of individuals, who normally see their wages grow over time (at least in nominal terms) as they gain experience and hence ability.

One sees a consequence of this in the chart above.  Those in the lowest quartile of the distribution of wage earnings have seen growth in the wages they earn as individuals that is greater than the percentage increases of those in the higher quartiles.  This is because those starting out in the labor force – and entering at relatively low wages – generally see a relatively fast rate of wage growth as they gain skills and are promoted.  This slows down over time, with older workers still receiving annual wage increases (in at least nominal terms) but not as large in percentage terms as young workers do.

Tracking the real wages of individuals is therefore of interest, but cannot then be used to track over long periods of time what has happened to average (or median) wages.  But for periods of several years, as well as for a comparison of growth in some early period to growth in a similar later period, tracking as in the chart above is of greater interest than what has happened to average or median wages of an always changing labor force with young workers entering and older workers leaving.  It is useful in comparisons of the growth in wages between presidential terms.

With this understanding, a number of points may be noted on individual wage growth in recent years:

a)  Individual wages in real terms were rising at a reasonable rate in the last few years of the Obama administration.  They then grew at a similar rate (not a faster rate) during the first three years of the Trump administration prior to the disruptions due to Covid.  In fact, the growth rate of overall individual wages (as measured at the medians) was 1.4% per annum in real terms during the final two years of the Obama administration (January 2015 to January 2017), and then the exact same 1.4% per annum in real terms during the first three years of the Trump administration (January 2017 to January 2020).

Trump has repeatedly claimed that wage growth (as well as many other things) were the highest ever during his administration, but that is not the case.  The most that Trump can rightfully claim is that he did not mess up the growth path that Obama had put the economy on following his reversal of the economic and financial collapse that began in 2008, in the last year of the Bush administration.

b)  With the onset of the Covid crisis in early 2020, individual real wages in fact rose despite the chaos of the lockdowns.  This might appear perverse, but in fact makes sense.  First of all, the rate of unemployment shot up to 14.8% – the highest it has been since the Great Depression (so Trump now owns this record).  But 85.2% remained employed, and were employed under often difficult personal circumstances given the easy spread of Covid and a lack of preparation by the Trump administration for the approaching pandemic.  (Trump instead repeatedly stated that all would be fine; that the virus would quickly disappear; and that banning flights from China had been a great success in stopping the virus.)

Those who remained in their jobs during this difficult period were often compensated well for their willingness to do so.  They received significant increases in their wages and/or bonuses.  The alternative of unemployment was also not as bad as it normally would be.  Aside from the safety aspect of protecting yourself from exposure to Covid, programs for the unemployed at the time were more generous and more easily available than they normally are, due to special legislation passed to address the exceptional circumstances of Covid.  Workers had this alternative, and firms had to respond.  Firms also received often generous support through various special programs during this period, that enabled them to pay higher wages to the employees who remained on the job.

Thus one sees in the chart above that individual real wages in fact rose in 2020, despite of (or perhaps one should say because of) the Covid disruptions.

c)  The Covid disruptions continued into 2021 and the first half of 2022, while the special support programs for firms and the unemployed were scaled back to normal.  But supply chains had been radically disrupted globally due to the crisis, did not start to recover until vaccines became widely available, and then required time to catch up and normalize.  And while supply was constrained, demand rose more quickly starting in 2021 as shoppers returned.  This demand was especially high both because of pent-up needs or desires for items not purchased in 2020 due to the lockdowns as well as caution due to the easy spread of the disease, while personal savings were exceptionally high and could now be spent.  Savings (and bank accounts) were high due both to the lack of spending in 2020 and to the extremely generous financial support packages passed under both Trump and Biden.

Global supply chains then worked themselves out by mid-2022.  The rate of inflation had been relatively high before then due to the high demand confronting limited supply, but inflation as measured by the CPI index for all items other than shelter then fell dramatically from July 2022 once supply was no longer constraining.

This inflation was then reflected in the decline in real wages from early 2021 to the trough in June 2022, as seen in the chart above.  From January 2021 to June 2022 the overall individual real wage fell at a rate of 3.5% per annum.  But probably a more appropriate measure would be for the period from January 2020 (immediately before the Covid crisis) to June 2022.  Over this period, the overall individual real wage fell at a rate of 1.2% per annum.

d)  Once Covid and its related impacts were largely over in mid-2022, real wages immediately began to grow again.  And indeed, they have grown since then (through at least to August 2024 – the most recent data available as I write this) at a rate of 2.5% per annum.  This is substantially faster than the pace they had grown under Trump (as well as under Obama before him), although this can be attributed in part to a recovery from the decline in the period ending in June 2022.

With this recovery, the overall individual real wage is now back on average to where it was in January 2021.  And the real wages of those in the lowest quartile and in the second quartile of the wage income distribution are now significantly higher than they have ever been.  But the levels as of August 2024 should not be seen as especially significant in themselves.  August is simply the most recent data available.  Rather, what is significant is the strong growth seen in real wages since June 2022, with no sign yet that that strong growth is abating.  Eventually that growth will likely return to the longer-term growth seen under Obama and then in the first three years of Trump, but it is not there yet.

e)  One should also note that all these figures are for the medians over a diverse population.  While the overall figures (whether measured at the means or the medians) have gone up and down, the actual real wages of any given individual can be quite different.  While the median individual real wage is now back to where it was in January 2021, this will not be true for everyone.  That diversity in experience needs to be recognized and acknowledged.

 

Biden inherited an economy that had suffered the sharpest downturn and highest unemployment since the Great Depression.  Managing the onset of the Covid pandemic in 2020 would have been difficult for even the most competent of administrations, but the Trump administration was far from the most competent.  The impacts of that crisis – on supply chains among other effects – continued into 2021 and the first half of 2022, and they led to falling real wages over this period.  But as supply chains normalized, real wages began to recover.  As of August 2024, overall individual real wages are back to where they were in January 2021.  But more importantly, those real wages have been growing at a rapid pace since mid-2022 and as yet show no sign of slowing down.

Trump’s Claims on the Economy and the Reality: A Comparison of Trump to Biden and Obama

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“We had the greatest economy in the history of the world.  We had never done anything like it. … Nobody had seen anything like it.”

Donald Trump, Republican National Convention, Milwaukee, July 18, 2024

A.  Introduction

Donald Trump is fond of asserting that the US “had the greatest economy in the history of the world” while he was president.  He claimed this when he accepted the nomination at the Republican National Convention (as quoted above); he claimed it when he debated President Biden in June; and it is a standard line repeated at his campaign rallies.  He also asserts that this is all in sharp contrast to the economy he inherited from Obama and to where it is now under Biden.  In a June 22 speech, for example, Trump said “Under Biden, the economy is in ruins.”

These assertions of Trump are not new.  He was already repeatedly making this claim in 2018 – in the second year of his administration – asserting that the US was then enjoying “the greatest economy that we’ve had in our history” (or with similar wording).  And he repeated it.  The Washington Post Fact Checker recorded in their database that Trump made this claim in public fora at least 493 different times (from what they were able to find and verify) by the end of his term in January 2021.

Repetition does not make something true.  And numerous fact-checkers have shown that the assertion is certainly not true (see, for example, here, here, and here, and for the 2018 statements here).  But readers of this blog may nonetheless find a review of the actual data to be of interest, and in charts so that the extent to which Trump is simply making this up is clear.

The post will focus on Trump’s record compared to that of Obama’s second presidential term (immediately before Trump) and Biden’s presidential term (immediately after).  The post will also show that even if you just focus on the first three years of his presidential term – thus excluding the economic collapse in his fourth year during the Covid crisis – Trump’s record is nothing special.  The collapse in that fourth year was certainly severe, and with that included Trump’s record would have been one of the worst in US history.  But Covid would have been difficult to manage even by the most capable of administrations.  Trump’s was far from that, and that mismanagement had economic consequences, but Trump’s record is not exceptional even if you leave that fourth year out.

This post complements and basically updates a longer post on this blog from September 2020.  That post compared Trump’s economic record not only to that of Obama but also to that of American presidents going back to Nixon/Ford.  I will not repeat those comparisons here as they would not have changed.  I will focus this post on just a few of the key comparisons, adding in the record of Biden.

B.  The Record on Growth

The two charts at the top of this post show how Trump’s record compares to that of Obama and Biden in the two measures most commonly taken as indicators of economic performance – growth in national output (real GDP) and growth in total employment (jobs).  This section will focus on Trump’s not-so-special record on growth, while the section following will focus on employment.

Trump has repeatedly asserted that economic growth while he was president surpassed that of any in history.  This is not remotely true in comparison to growth under a number of post-World War II presidents.  (Quarterly GDP statistics only began in 1947 so older comparisons are more difficult, but there were certainly many other cases further back as well.)  Giving Trump the benefit of excluding the economic collapse in 2020 during the Covid crisis, real GDP grew at an annual rate of 2.8% over the first three years of Trump’s presidential term.  But real GDP grew at an annual rate of 5.3% during the eight years of the Kennedy/Johnson presidency; at a rate of 3.7% during the Clinton presidency; 3.4% during Reagan; and 3.4% as well during the Carter presidency.  The 2.8% during the first three years of Trump is not so historic.  Carter’s economic record is often disparaged (inappropriately), but Carter’s record on GDP growth is significantly better than that of Trump – even when one leaves out the collapse in the fourth year of Trump’s presidency.

Nor is the Trump record on growth anything special compared to that of Biden or Obama.  As seen in the chart at the top of this post, growth under Biden over the first three years of his presidency matched what Trump bragged about for that period (it was in fact very slightly higher for Biden).  GDP growth then remained strong in the fourth year of Biden’s presidency instead of collapsing.  Growth in the Obama presidential term immediately preceding Trump was also similar:  sometimes a bit above and sometimes a bit below, and with no collapse in the fourth year.  It was also similar in Obama’s first term once he had turned around the economy from the economic and financial collapse he inherited from the last year of the Bush presidency.

Trump’s repeated assertion that “we had the greatest economy in the history of the world” was a result – he claimed – of the tax cuts that Republicans rammed through Congress (with debate blocked) in December 2017.  While the law did cut individual income tax rates to an extent (heavily weighted to benefit higher income groups), the centerpiece was a cut in the tax rate on corporate profits from 35% to just 21%.  The argument made was that this dramatic slashing of taxes on corporate profits would lead the companies to invest more, and that this spur to investment would lead to faster growth in GDP benefiting everyone.

That did not happen.  As we have already seen, real GDP did not grow faster under Trump than it had before (nor since under Biden).  Nor, as one can see in the chart at the top of this post, was there any acceleration in the pace of GDP growth starting in 2018 when the new tax law went into effect in the second year of his presidential term (i.e. starting in Quarter 5 in the charts).

The promised acceleration in growth was supposed to be a consequence of a sustained spur to greater private investment from the far lower taxes on corporate profits.  There is no evidence of that either:

The measure here is of fixed investment (i.e. excluding inventories), by the private sector (not government), in real terms (not nominal), and nonresidential (not in housing but rather in factories, machinery and equipment, office structures, and similar investments in support of production by private firms).

This private investment grew as fast or often faster under Obama (when the tax rate on corporate profits was 35%) as under Trump (when the tax rate was cut to just 21%).  Growth under Biden has also been similar, even though the tax rate on corporate profits remains at 21%.  This similar growth is, in fact, somewhat of a surprise, as the Fed raised interest rates sharply starting in March 2022 with the aim of slowing private investment and hence the economy in order to bring down inflation.

With the far lower corporate profit tax rates going into effect in the first quarter of 2018 and the Fed raising interest rates starting in the first quarter of 2022 – both cases in the fifth quarter of the Trump and Biden presidential terms respectively – a natural question is what happened to private investment in the periods following those changes?  Rebasing real private non-residential fixed investment to 100 in the fourth quarter of the presidential terms, one has:

The paths followed by private investment under Biden (facing the higher interest rates of the Fed) and under Trump (following corporate profit taxes being slashed) were largely the same – with the path under Biden often a bit higher.  They diverged only in the 12th quarter of each administration (the fourth quarter of 2019 for Trump, and the fourth quarter of 2023 for Biden).  Under Trump, private investment fell in that quarter – well before Covid appeared – and then collapsed once Covid did appear.  Under Biden, in contrast, it kept rising up until the most recent period for which we have data.

It is also worth noting that private investment during the similar period in Obama’s second term rose by even more than under Trump (and for a period faster than under Biden, although later it rose by more under Biden).  This was despite a tax rate on corporate profits that was still at 35% when Obama was in office.  There is no evidence the tax rate mattered.  And although not shown in the chart here, private investment rose by far more in the similar period during Obama’s first term (although from a low base following the 2008 economic collapse).

With similar growth in such investment in all three presidential terms (leaving out the collapse in 2020), the conclusion one can draw is that taxes at such rates on corporate profits simply do not have a meaningful impact on investment decisions.  Decisions on how much to invest and on what depend on other factors, with a tax rate on profits of 21% or of 35% not being central.  Nor did the Fed’s higher interest rates matter all that much to investment during Biden’s term.  With a strong economy under Biden, firms recognized that there were investment opportunities to exploit, and they did.

The far lower tax rate of 21% on corporate profits did, however, lead to a windfall gain for those who owned these companies.  Far less was paid in such taxes.  That is, the tax cuts did have distributional consequences.  But they did not spur private investment nor overall growth.  They did not lead to “the greatest economy in the history of the world”.

C.  The Record on Employment

As seen in the chart at the top of this post, growth in total employment was higher under Obama than it was under Trump, and has been far higher under Biden – even if you restrict the comparison to the first three years of the respective presidential terms.  In the face of this clear evidence in favor of Biden’s record, Trump has now started to assert that the growth in jobs under Biden was due to a “bounce back” in jobs following the collapse in the last year of his administration, or that they all went to new immigrants.  But neither is true.

First, as one can see in the chart there has been strong growth in the number employed not only early in Biden’s administration but on a sustained basis throughout.  And second, nor was the growth only in the employment of immigrants.  The Bureau of Labor Statistics provides figures from its Current Population Survey (CPS) of households on the employment of those who were born in the US (the native-born) and those born abroad (the foreign-born).  Leaving out the collapse in 2020, employment growth over the first three years of Trump’s presidential term of the native-born averaged 1.3% per year.  During the first three years of the Biden presidential term, employment growth of the native-born averaged 1.8% per year.  The growth in employment of the native-born was not zero under Biden – as Trump claims – but rather was faster under Biden than under Trump.  While there is a good deal of noise in the CPS figures (which will be discussed below), these numbers do not provide support for Trump’s assertion.

There has also been concern expressed in the media with what was interpreted as a “disappointing” growth in employment in July.  The BLS “Employment Situation” report for July, released on August 2, indicated that employment rose by an estimated 114,000 in the month.  This is a good deal below the average in the 12 months leading up to July of 209,300 per month.  But an increase of 114,000 net new jobs in the month is substantial.  While there will often be large month-to-month fluctuations, one should not expect more on average going forward.

With the economy basically at full employment (the recent uptick in the unemployment rate – to a still low 4.3% – will be discussed below), the number employed cannot grow on a sustained basis faster than the labor force does.  And the labor force will grow at a monthly pace dictated by growth in the adult civilian population (i.e. age 16 and over) and what share of that adult population chooses to participate in the labor force.  The labor force participation rate in July was 62.7% and has been trending downward over the past several decades.  While a number of factors are behind this, the primary one has been the aging of the population structure with the Baby Boom generation moving into their normal retirement years.

The BLS report (using figures obtained from the Census Bureau) indicates that the adult civilian population rose by an average of 136,800 per month in the 12 months leading up to July.  At a labor force participation rate of 62.7%, the labor force would thus have increased by 85,800 per month.  Without an increase in the labor force participation rate, employment cannot grow faster than this on a sustained basis going forward.

In the past 12 months, however, the BLS report for July indicates that the labor force in fact grew at an average pace of 109,700 per month.  How was this possible?  The reason is that although the labor force participation rate is on a long-term downward trend due to the aging population, there can be and have been fluctuations around this trend.  And a small fluctuation can have a significant effect.  The labor force participation rate one year ago in July 2023 was 62.6%, and thus the rate in fact rose by 0.1% from July 2023 to July 2024.  If the labor force participation rate in July 2023 had in fact been 62.7%, then the labor force in July 2023 would have been 167,410,000 rather than the actual 167,113,000, and the increase over the 12 months leading to July 2024 would have averaged 84,900.  Within round-off, this is the same as the 85,800 figure calculated in the preceding paragraph for a constant 62.7% labor force participation rate,  (With more significant digits, the labor force participation rates were 62.589% and 62.696% respectively, and a constant 62.696% participation rate would have yielded the 85,800 figure for labor force growth.)

We should therefore not expect, going forward, that monthly employment will increase on a sustained basis by more than about 90,000 or so, or even less.  It could be higher if the labor force participation rate increases (and a small change can have a major effect), but the trend over the past couple of decades has been downward – as noted already – due to the aging of the population.  How then, was it possible for employment to have gone up by an average of 209,300 per month over the past year?  And this was also a period where the estimated unemployment rate rose from 3.5% in July 2023 to 4.3% in July 2024, which “absorbed” a share of the increase in the labor force as well.

The reason for these not fully consistent numbers is that employment estimates come from the Current Employment Statistics (CES) survey of establishments where people are employed, while the labor force and unemployment estimates come from the different Current Population Survey (CPS) – a survey of households.  The CES is a survey of nonfarm employers in both the private and public sectors, and covers 119,000 different establishments at 629,000 different worksites each month.  The “sample” (if it can be called that) covers an estimated one-third of all employees.

The CPS, in contrast, is a survey of about 60,000 households each month.  There will only generally be one or two members of the labor force in each household, so the share of the labor force covered will be far less than in the CES.  If each household had two members in the labor force, for example, the total of 120,000 would be only 0.07% of the labor force –  a sharp contrast to the one-third covered in the CES.  There is therefore much more statistical noise in the CPS data.  There are also definitional differences:  The CPS will include not only those employed on farms but also the self-employed and those employed in households.  Also, a person with two or more jobs will be counted as one person “employed” in the CPS.  The CES, in contrast, counts the employees of a firm, and the employers will not know if the individual may be working at a second job as well.  Thus a person working two jobs at two different firms will be counted as two “employees” in the CES.

These definitional differences are not major, however, and in part offset each other.  An earlier post on this blog looked at these differences in detail, and how, in an earlier period (2018/2019) there was a substantial deviation in the employment growth figures between the estimates in the CES and the CPS.  This was the case even with the figures adjusted (to the extent possible) to the same definition of “employment” in each.  There is a similar deviation between the employment estimates in the CES and in the CPS currently, with this accounting for a strong growth in employment as estimated by the CES (of 209,300 net new jobs each month over the past year) even though the labor force has grown -according to the CPS – by a more modest 109,700 per month over this period.

The labor market remains tight, however, even with the rise in the estimated unemployment rate to 4.3% in July:

The unemployment rate fell rapidly under Biden, following the chaos of 2020.  It was at a rate of 3.9% or less for over two years (27 months), despite the efforts by the Fed to slow the economy by raising interest rates.  The unemployment rate was also 3.9% or less for a period under Trump (for 20 months).  But as one sees in the chart, during the first three years of Trump’s term it basically followed the same downward path as it had under Obama.  It then shot up in March 2020 when the nation was caught unprepared for Covid.  As with the other key economic indicators (the growth in GDP, in employment, and in private investment), the paths followed by the economy during the first three years of Trump’s term were basically the same as – although usually not quite as good as – the paths set during Obama’s presidency.  They all then collapsed in Trump’s fourth year.

Any unemployment rate near 4%, and indeed near 5%, is traditionally seen as low.  Economists have defined the concept of the “Non-Accelerating Inflation Rate of Unemployment” (NAIRU) as the rate of unemployment that can be sustained without being so low that inflation will start to rise.  While one can question how robust this concept is (as will be discussed below), the NAIRU rate of unemployment has generally been estimated (for example by the staff at the Federal Reserve Board) to be between 5 and 6%.  An unemployment rate of 4.3% is well below this.  While the unemployment rate has gone up some in recent months, it is still extremely low.

D.  The Record on Real Living Standards

Ultimately, what matters is not the growth in overall output (GDP) or in employment, but rather in real living standards.  Many have asserted that because of recent inflation, living standards have gone down during Biden’s presidential term.  This is not true, as we will see below.  But first we will look at inflation.

Inflation rose significantly early in Biden’s presidential term.  The pace moderated in mid-2022, but until recently prices continued to rise:

Inflation was less during Trump’s term in office but was even lower under Obama.  Indeed, consumer price inflation has been low since around 1997, during Clinton’s presidency, until the jump in 2021.  Why did that happen?

The rise in 2021 can be attributed to both demand and supply factors.  On the demand side, both Trump and Biden supported and signed into law a series of genuinely huge fiscal packages to provide relief and support during the Covid crisis.  The packages were popular – especially the checks sent to most Americans (up to a relatively high income ceiling) that between the various packages totaled $3,200 per person.  But the overall cost for all the various programs supported was $5.7 trillion.  That is huge.  The funds were spent mostly over the two years of 2020 (under Trump) and 2021 (under Biden), and $5.7 trillion was the equivalent of 12.8% of GDP over those two years.  Or, as another comparison, the total paid in individual income taxes in the US in the single year of FY2023 was “only” $2.2 trillion.

While there was this very substantial income support provided through the series of Covid relief packages, households were limited in how much they could spend – out of both these income transfers and their regular incomes – in 2020 due to the Covid pandemic.  One went out only when necessary, and kept only to shopping that was necessary.  This carried over into early 2021.  But people could become more active as the Biden administration rolled out the massive vaccination campaign in the first half of 2021.  People then had a backlog of items to buy as well as the means to do so from what had been saved in 2020 and early 2021.  Demand rose sharply, and indeed Personal Consumption Expenditures in the GDP accounts rose by more in 2021 (by 8.4%) than in any year since 1946 (when it rose by 12.4%, and for similar reasons).

But at the same time, supply was constrained.  Supply chains had been sharply disrupted in 2020 worldwide due to Covid, and took some time to return to normal.  There was then the additional shock from the Russian invasion of Ukraine in February 2022, leading oil and many other commodity prices to spike.

Supply chains did, however, return more or less to normal early in the summer of 2022.  And as they did, one saw a sudden and sharp reduction in pressures on prices, in particular on the prices of goods that can be traded:

This chart shows the annualized inflation rates for 6-month rolling periods (ending on the dates shown) for the overall CPI, for the shelter component of the CPI, and for the CPI excluding shelter.  The overall inflation rate rose from an annualized rate of 3.2% in the six months ending in January 2021 (the end of Trump’s term) to a peak of 10.4% in the six months ending in June 2022.  It then fell remarkably fast, to an annualized rate of just 2.6% in the six months ending in December 2022.

This sudden drop in the inflation rate is seen even more clearly in the CPI index of prices for everything but shelter:  The annualized rate fell from 12.4% in the first half of 2022 (the six months ending in June) to a negative 0.2% rate in the second half of 2022 (the six months ending in December).  Why?  There was not a sudden collapse in consumer or other demand.  Rather, supply chains finally normalized in the summer of 2022, and this shifted pricing behavior.  When markets are supply constrained (as they were with the supply chain problems), firms can and will raise prices as competitors cannot step in and supply what the purchaser wants – they are all supply constrained.  But as the supply chains normalized, pricing returned to its normal condition where higher demand can be met by higher production – whether by the firm itself or, if it is unwilling, by its competitors.  It is similar to a phase change in conditions.

Shelter is different.  It covers all living accommodations (whether owned or rented), and as has been discussed in earlier posts on this blog (see here and here), the cost of shelter is special in the way it is estimated for the CPI.  It is also important, with a weight of 36% in the overall CPI index (and 45% in the core CPI index, where the core index excludes food and energy).  The data for the shelter component of the CPI comes from changes observed in the rents paid by those who rent their accommodation, and rental contracts are normally set for a year.  Hence, rental rates (and therefore the prices of the shelter component of the CPI) respond only with a lag.  One can see that in the chart above, with the peak in the inflation rate for shelter well after the peak in the inflation rate for the rest of the CPI.

Since mid-2022, the rate of inflation as measured by the overall CPI has generally been in the range of 3 to 4% annualized.  Increases in the cost of shelter have kept it relatively high and above the Fed’s target of about 2% per annum.  But as seen in the chart, it has recently come down – falling to an annualized rate of 2.5% in the six months ending in July.  For everything but shelter, the rate in the six months ending in July was only 1.4%.

One question that some might raise is whether the very tight labor markets – with an unemployment rate that was 4% or less until two months ago – might have led to the inflation observed.  The answer is no.  As noted above, inflation in all but shelter fell suddenly in mid-2022, falling from a rate of 12.4% in the first half of the year to a negative 0.2% in the second half, even though the unemployment rate was extremely low at 4% or less throughout (and only 3.5 or 3.6% in all of the second half of 2022).  Unemployment has remained low since while inflation has come down.  If the cause was tight labor markets, then the rate of inflation would have gone up rather than down.

Similarly, inflation as measured by the CPI was not high in 2018 nor in 2019 when labor markets were almost as tight during Trump’s presidency – with overall inflation then between 2 and 3% on an annual basis.  Nor did inflation go up during the similarly tight labor market of 1999 and 2000 during the Clinton presidency:  CPI inflation was generally in the 1 1/2 to 3 1/2 % range during that period.  All this calls into question the NAIRU concept, with its estimate that an unemployment rate below somewhere in the 5 to 6% range will lead to pressures that will raise the rate of inflation.

Managing inflation coming out of the chaos of 2020 was certainly difficult.  Inflation spiked in most countries of the world following the Covid crisis, reaching a peak in 2022.  But the rate of inflation has since come down as supply conditions normalized.  That does not mean that the absolute level of prices came down, only that they were no longer increasing at some high rate.  Wages and other sources of income will then adjust to the new price levels, and what matters in the end is whether real levels of consumption improve or not.  And they have:

The chart shows the paths followed for per capita real levels of personal consumption expenditures, as measured in the GDP accounts, during the presidential terms of Trump, Biden, and the second term of Obama.  The path followed under Trump was basically the same as that followed under Obama – until the collapse in the last year of Trump’s term.  The path followed under Biden has been substantially higher than either.  It was boosted in his first year as the successful vaccination campaign allowed people to return to their normal lives.  They could then purchase items with not only their then current incomes, but also with the savings they had built up in 2020.  But even if one excludes that first year, the growth under Biden has been similar to that under Obama and under Trump up to the collapse in Trump’s fourth year.

Once again, there is no basis for Trump’s claim of the “greatest economy”.

E.  Summary and Conclusion

The economy during Trump’s presidency was certainly not “the greatest in the history of the world”.  Nor was it even if you leave out the disastrous fourth year of his presidency.  Covid would have been difficult to manage even by the most capable of administrations, and Trump’s was far from that.  Instead of preparing for the shock this highly contagious disease would bring, Trump’s response was to insist – repeatedly – “it’s going to go away”.

Trump’s economic record was certainly nothing special.  Real GDP grew as fast or faster under Obama and Biden as it had under Trump.  Trump insisted that growth would be – and was – spurred by the tax cuts that he signed into law in late 2017 that slashed the tax on corporate profits.  But there is no indication of this in the data.  Nor is there even any indication that private investment rose as a result of the lower taxes.

Employment has grown far faster under Biden than it had under Trump, and also grew faster in Obama’s second term – even leaving out Trump’s disastrous fourth year.  Unemployment fell during the first three years of Trump’s term in office (before sky-rocketing in his fourth year), but here it just followed a very similar path to that under Obama.  For this, as with GDP and employment growth, perhaps the biggest accomplishment of Trump’s first three years in office was that he did not mess up the path that had been set under Obama.  And unemployment has been even lower under Biden.

Inflation was certainly higher in 2021 as the US came out of the Covid crisis.  Supply chains were still snarled, but there was pent-up demand from consumers who had had to avoid shopping in 2020 due to Covid and who also benefited from a truly huge set of Covid relief packages passed under both Trump and Biden.  Supply chains then normalized in mid-2022, sharply reducing pricing pressures for goods other than shelter.  Due in part to lags in how rental rates for housing are set (as they are normally fixed for a year) and then estimated by the BLS, the cost of the shelter component of the CPI came down more slowly than the cost of the rest of the CPI.  This kept inflation as measured higher than what the Fed aims for, although recently (in the last half year) it has come down again.  Most anticipate that the Fed will soon start to cut interest rates from their current high levels.  The inflationary episode resulting from the Covid crisis appears to be coming to an end.

There is thus no justification for the claim by Trump that “we had the greatest economy in the history of the world”.  Yet he has repeatedly asserted it, both now and when he was president.  Why?  Stephanie Grisham, who served in the Trump administration as press secretary and in other senior positions, and who had been – by her own description – personally close to Trump, explained it well in a speech she made on August 20 to the Democratic National Convention.  She noted that Trump used to tell her:  “It doesn’t matter what you say, Stephanie.  Say it enough, and people will believe you.”

Many do appear to believe that the economy was exceptionally strong when Trump was president:  that it was “the greatest in history”.  But that is certainly not true.  Facts matter; reality matters; and a president needs to know that they matter.