By Economic Strategist, Hottinger Investment Management
Last week, the U.S. Labour department issued its most important figures. Job creation surprised on the upside, with 250,000 new positions filled compared to the expectation of 195,000. Additionally average earnings broke through the three-percent barrier for the first time in nine years to 3.1% in a sign that inflationary pressures are increasing. Labour force participation rose slightly from 62.7% to 62.9% as the unemployment rate held steady at 3.7%.
With the latest chapter in American democracy reaching its denouement tomorrow, it is worth considering a little trend that has wider import. Over the course of this year, the unemployment rate for Americans with less than a high school diploma actually rose. It increased from 5.2% last December to 6.0% last month. The monthly figures between those two dates are volatile but there is a clear upward movement. Meanwhile the unemployment rate for graduates has stayed flat at around 2%. It is worth noting that an unemployment rate of 2% is meaningless as it reflects mostly the proportion of people that are moving between jobs at any one time.
The high unemployment rate among those who are classed as ‘unskilled’ exists despite a record number of open vacancies (over 7 million) and firms saying it takes them over a month to fill the average role, such is the dearth of available labour.
Three features stand out from the chart below, which I have called “A Tale of Two Americas”. The first is that at no point in the last ten years has the graduate unemployment rate been higher than the lowest level that unemployment has been for those without high school diplomas. The second is that the rise in high school unemployment during the Great Recession was almost four times higher than the rise in graduate unemployment. The third point is that the chart exposes the structural inability of the US economy to produce jobs quickly for low-skilled people who want them, as there has not been a tendency for the two series to converge. This last point is underscored by the fact that the US labour force participation rate has not recovered from its high of 66% in the months before the financial crisis, meaning effectively that about 3% of the working age population have remained out of the labour force. (You could say, with some justification, that the real unemployment rate for the unskilled is as high as 9%.) It is often during recessions that firms take measures to automate and streamline their processes. And of course, lastly, these trends take no account of the rate of underemployment and precarious employment that exists to a greater extent within the lower echelons.
The point is that in the US if you’re a graduate you have almost no reason for economic anxiety and recessions are a mild inconvenience, although you might have the millstone of student debt around your neck. If you’re not, then you don’t. It’s a tale of two Americas because it is the people in the first camp who are likely to vote Democrat in the upcoming mid-terms and the people in the second camp who will back Donald Trump’s Republican Party; US counties that are more exposed to trade with China and Mexico, and which have more jobs at risk from automation, were significantly more likely to back Trump in 2016. There are enough people in Donald Trump’s camp to keep him from losing both chambers of Congress.
When you don’t have to worry about material matters, you can afford to build your political values around post-materialist issues such as gender, sexual and racial equality – important though they are. The Democratic Party has become a party of social-justice for post-materialist voters while developing a blind-spot towards the issues facing blue-collar workers, once a core part of their support, in the flyover states and in the Mid-West. For these, the material still matters, or as Bill Clinton eloquently put it: “It’s [still] the economy, stupid!”
It’s not that simple, however, as Republicans are still on average wealthier than Democrats, which attract a huge number of votes from poorer minorities as well as graduates. But the voters who pushed Trump over the winning line in 2016 belong to a specific, sizeable and important demographic, the white working class that once was solidly Democratic but now forms that heart of Trump’s base.
Core Trump voters, particularly male ones, can sense that the jobs that in their view gave them dignity – typically in agriculture, mining and manufacturing – are giving way to those that, again in their view, don’t. The US economy will need more care workers, nurses and office workers (jobs perceived to be feminine) in the future and fewer truck drivers, farmers and machinists (jobs perceived to be masculine), and many of Trump’s voters still think he is the one to bring them back. He’s failing.
Leaving aside whether Trump has actually done anything to advance this group’s interests in the last two years (he hasn’t), it remains the case that the US President’s targeted assault on various institutions, politicians and minorities is a sort of displacement technique that soothes the anxieties of his voters and permits blame for their plight to be shifted, not entirely unjustly, to the metropolitan and coastal view of things that has dominated since the 1980s. Sending thousands of troops to a 2000-mile US border to defend against refugees who have yet to complete the small task of walking through Mexico is the latest move to this effect.
While it is very likely that the Democrats will win the House of Representatives next week, the Republicans will probably keep control of the Senate, only a third of whose seats are being contested and most of those already held by Democrats, compared to every seat in the House of Representatives. Donald Trump’s popularity (at around the low 40s) has remained high enough for his party not to lose both chambers. But if recent presidential history is anything to go by, the return of a split Congress will make it harder for the President to push through his agenda, and that includes the tax cuts and deregulatory acts that have been helping US firms boost their earnings and increase their degree of freedom over the last 12 months.
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