In this week’s Economic Report, Dr. Rick Harper looks at the latest ADP report on job growth, talks about potential tax cuts in the Trump administration and what those reductions could mean for Northwest Florida.
Harper said the report from the ADP, the nation’s largest payroll processor, which comes out two days before the federal statistics on jobs that are released on the first Friday of every month, yielded “surprisingly good” results.
“What we’re expecting to see now as a result of the ADP report is a 200,000-net new job gain, when the federal statistics are available, and that’s surprisingly good,” Harper said. “I had said that as the economy gets closer and closer to full employment … that we would see the job creation rate slow and that we wouldn’t see so many of those 200,000-net new job months, but it looks like November is going to be one of them – good performance. President-elect (Donald) Trump is certainly inheriting a good strong economy. The job market continues to look good.”
The services sector saw the greatest gains, Harper said. However, manufacturing lost jobs.
“The total (net new jobs gain) was 216,000, however services gained (228,000.) And then manufacturing, goods production, which is where so much of the incoming administration focus is going to be, was actually a net loser for the month, down just over 10,000 jobs.”
The loss of jobs in the manufacturing sector is not because of globalization, Harper said. China and Mexico have lost more manufacturing jobs than the U.S. economy.
“The culprit here is actually automation,” Harper said. “So what remains to be seen is how does the incoming administration create good effective policy when really the job loss in goods-producing industries it being driven by technology. You can’t tell firms to stop using new technology. That’s just a recipe for moving backward towards the 20th century, so it will be interesting to see how that plays out.”
Trump tapped former Goldman Sachs banker Steven Mnuchin as treasury secretary, and Harper talked about what economic policies could be in store in the Trump administration, particularly when it comes to tax cuts.
“Mr. Mnuchin offered some clarifications to the press this week, and he walked back a little bit the idea of upper-income tax cuts,” Harper said. “The tax cuts are projected to still be in place, and, of course, President-elect Trump is going to have a much easier time with Congress than a President Clinton would have had, of course, due to the leadership issues there. What we now hear is that is that middle-class tax cuts will have a bigger role to play because the tax cuts for upper-income households would largely be offset by decreased ability to use deductions against their income, such as putting a cap on the mortgage interest deduction so that it might not apply to homes above a certain value or to generally decrease the scope of that.”
Those who live in areas where in higher income areas where housing costs are high, such as the northeastern corridor stretching from Boston to Washington D.C., are likely to benefit more from those tax cuts, than more middle-class areas such as Northwest Florida, Harper said.
“Those tend to be higher-income areas, a large part of that higher income is due to higher housing costs, that employers need to pay more wages because to get people to live in those high-cost areas you have to compensate them for that cost-of-living differential,” Harper said. “However, what these tax cuts would mean is that people in higher income areas on average would benefit more. What we would have to hope for here in Northwest Florida is that we would see the benefits of some infrastructure spending or perhaps some additional military spending.”
“We are the most military-intensive area of the state,” Harper said. “Certainly Okaloosa County is second to none of the other 66 counties in the state of Florida in terms of the share of its employment that derives from (Department of Defense) spending and also high retiree population concentration as well. So anything that means a higher spending for military particularly given the missions that we have in this area – pilot training, special forces operation, weapons, research and development, testing and evaluation – those things would bode well for employment, a number of people employed in those functions, whether civilian support or directly in the military and also for wages in those functions that would then ripple through to the rest of the economy. So that is certainly one area where we can look to for gains from the Trump administration.”
Dr. Rick Harper serves as associate vice president for research and economic opportunity at the University of West Florida and oversees the University’s Center for Research and Economic Opportunity. He can be reached at firstname.lastname@example.org. CREO staff writer Richard Conn contributed to this report. He can be reached at email@example.com.
This article is part of a collaboration between WUWF and the UWF Center for Research and Economic Opportunity.