A number of experts have stepped forward to suggest that the US economy has finally shaken off the 2007 recession and is back to full employment. The official unemployment rate currently stands at 4.4% and the underemployment rate has fallen to 8.6%. The underemployment rate monitors those who would like to work more hours and take a job if they could find one. This figure supports the idea that the US is currently at full employment. So, what does this mean for the US economy in the short to medium term?
Businesses struggling to fill posts
While there is nothing wrong with a strong economy and relatively low unemployment, the current situation is starting to hit many businesses. There are now a record number of open positions across US businesses which are proving extremely difficult to fill. Eventually this will mean businesses having to “pay up” to find staff which will place upward pressure on wages.
It would be wrong to suggest the market is overheating because average hourly earnings are currently increasing at around 3% per annum. History shows us that there is plenty of room for this figure to increase in the short to medium term which seems highly likely given the difficulties many businesses are experiencing when trying to recruiting suitable staff.
Immigration restrictions
Donald Trump came to office with various promises to limit immigration and the hidden illegal workforce. In many ways this played into the hearts and minds of many voters hence his victory over Hillary Clinton. During the presidential campaign he highlighted the cost of illegal immigrants to the US taxpayer and the US employment market. However, there is a flipside to this coin.
Even though Donald Trump likes to give the impression that the vast majority of immigrant workers have little to offer US, this is not necessarily the case. It is no coincidence that many businesses are now finding it difficult to recruit suitable stuff as the unemployment and underemployed rates continue to fall. There is no doubt this is impacting the ability of many businesses to “continue as normal” and a worrying consequence will be an eventual increase in wage inflation, needed to attract workers in the future.
US economy
It would be wrong to suggest that it has been plain sailing over the last year for the US economy, indeed recent economic data was disappointing, but many experts believe there is still more to come. One of many indicators closely watched by the experts is the affordability factor in relation to US homes. Even though this has risen over the last couple of years many believe it is still “midcycle” and there are no serious concerns at present.
The harsh reality for the US economy is that tweaks and changes made by Donald Trump in the short term will place unwanted upward pressure on wage inflation. It is now time for President Trump to deliver on his promises to invest in infrastructure, reduced taxes and start moving towards his economic growth target of 4% per annum. Will he need to water down his immigration restrictions? How quickly can Donald Trump roll out his infrastructure programme? Unfortunately there are more questions than answers emerging for Donald Trump at this moment in time.