Ahead of Tax Reform Bill, a Revving Economy

Ahead of Tax Reform Bill, a Revving Economy

All eyes on are on Congress this week as House and Senate conference committees hammer out differences in their Tax Reform/Tax Cut bills and aim to pass historic legislation by the end of the year.

President Donald Trump is reportedly planning a speech on Wednesday about the tax cut legislation, Bloomberg reports. This is a president making the case to the American people about the need to modernize the tax code and level the playing field for American workers and businesses.

Setting the table for all this is Friday’s November jobs report from the Bureau of Labor Statistics  and what it says about possibilities for even greater GDP growth after the third quarter clocked in at 3.3%, up from the second quarter’s 3.1%.

The BLS says the economy added 228,000 new jobs in November over the prior month; unemployment is at at 17-year low 4.1 percent. That works out to about 6.6 million unemployed people. For the year, BLS data show the unemployment rate and the number of unemployed persons were down by 0.5 percentage point and 799,000, respectively.

But the real number everyone is looking for is wage growth, one of the key goals of the tax cut package in Congress.

The WSJ has a handy page of analysis that quotes economists those of the dismal science and finds plenty of optimism about what they see over horizon, even though “wage growth hasn’t increased particularly quickly.”

A sampling:

“The annual growth rate of average hourly earnings was a very pedestrian 2.5% in November. We expect an acceleration above 3% next year.” — Paul Ashworth, chief U.S. economist at Capital Economics

“If unemployment continues to fall, wage growth will rise.” — Ian Shepherdson, chief economist at Pantheon Macroeconomics

“We expect hourly earnings to accelerate some more over time.” — Jim O’Sullivan, chief U.S. economist at High Frequency Economics

“The NFIB survey sub-component that queries small business owners about their plans in terms of compensation changes provides a decent leading indicator of the ECI private wage and salary measure (see chart below). The signal being flashed is for accelerating gains in wages & salaries in the months ahead.” — Joshua Shapiro, chief U.S. economist at MFR Inc. 

“The annual growth rate of average hourly earnings was a very pedestrian 2.5% in November. We expect an acceleration above 3% next year.” — Paul Ashworth, chief U.S. economist at Capital Economics

“If unemployment continues to fall, wage growth will rise.” — Ian Shepherdson, chief economist at Pantheon Macroeconomics.

“Poststorm repair work likely supported the 24,000 increase in construction jobs. That said…the underlying trend is strong. This will push the unemployment rate below 4% very soon.” —Ian Shepherdson, Pantheon Macroeconomics”

The BLS breakout data tell many stories but this one popped:

“Within construction, employment among specialty trade contractors increased by 23,000 in November and by 132,000 over the year.”

This is notable because it would show that building trades groups are responding to the labor shortage in construction by recruiting and training more new entrants into the building trades to meet that growth.

Apprenticeships are expanding their scope of training to meet the contractors’ demand for specialty skills in construction.

Wage rates are inching up overall in construction as demand soars. The Central Valley Business Journal, based in California, plucks out of the BLS data:

The U.S. Department of Labor reports that the need for masonry workers is predicted to rise by 15 percent from 2014-2024, for instance. Comparatively, demand for electricians, plumbers, and roofers, is expected to grow between 12-14 percent in each sector within the same time span.

The BLS notes that employment within the construction industry overall is likely to grow by 10 percent from 6.5 million to 7.2 million jobs, which is higher than the national average for all occupations.

This is another area to watch for wage growth in working class and middle-class sectors.

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