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The U.S. economy continues to move into positive territory. For the first quarter of 2019, real GDP (Gross Domestic Product) in 2012 prices was about $18.9 trillion after a healthy year-on-year growth of 3.2 percent. Plus, the national unemployment rate is at a near historic low of 3.6 percent, about 1 percent below the Congressional Budget Office’s estimated level of full employment. We are also experiencing an extraordinary period of stable and low inflation,” writes Robert Sonora in the current issue of Montana Business Quarterly.

This is partially due to average labor costs and productivity, which have remained low and steady since the end of the Great Recession, keeping inflation in check. The growth of wages leveled off between 2013 and 2015, growing at 1 percent after an average growth rate of zero percent from 1987 to 2011.

About the state’s economy, the report states that “Following the Great Recession, Montana appears to have survived two additional recessions – one in 2012-14 and again in 2016. The biggest drivers of these two downturns were natural resources, both agriculture and mineral extraction. Part of this can be explained by lower prices in agricultural output and coal around 2012, and lower gas and oil prices between 2015 and 2016. Manufacturing also declined in 2015 and 2016.

“Meanwhile overall unemployment in the state has remained the same since 2015. Population and nonfarm employment have been growing at the same rate and it’s likely that the unemployment rate is at or near its long run trend – estimated to be between 3.5 percent and 4 percent.”

 

In continuing an analysis of the national economy, Sonora writes, “The labor market may not be as tight as statistics suggest. U6 unemployment, which includes discouraged workers, marginally attached workers and workers who work part time but want to work full time, remains above 7 percent.

“The Tax Cuts and Jobs Act was intended to increase corporate investment in new capital, which in turn would result in more hiring. But as we have seen, at the time the law was signed unemployment was at its lowest since the end of 2000. So there is little reason to believe that unemployment can go much lower, which it really has not. Since the start of 2018, the unemployment rate has been between 3.6 and 4.1 percent.

“More uncertainties lie in the disruptions caused by the Trump administration’s trade policy. In 2018, the Tax Foundation estimated that the first round of tariffs on imported goods from China, Mexico, Canada would cost the U.S. about a half-million jobs from retaliation and higher imported intermediate goods, such as steel. Rough estimates from the first round of tariffs have estimated U.S. losses of three to five jobs per one job saved.

“The tariffs are not only resulting in job losses – the agriculture sector in particular is suffering from retaliatory tariffs. According to Wisconsin Sen. Tammy Baldwin (R), Chinese retaliatory tariffs have contributed to 1,500 bankruptcies in the dairy industry – 90 in April alone. The government has provided nearly $30 billion in aid to farmers to compensate them for lost revenues.

“Unfortunately, it is American households who are paying for this. According to economists from the Federal Reserve, Princeton and Columbia, American families are paying nearly 100 percent of the tariffs in the form of higher prices. The aid package to farmers is paid for by U.S. taxpayers as well.

“Fortunately, this is not likely to throw the U.S. economy into a recession and we predict no recession over the next 12 to 16 months.”