On June 1, around the time the Bureau of Labor Statistics was announcing that the U.S. May unemployment rate hit an 18-year low at 3.8 percent with the healthy addition of some 223,000 new hires, I happened to drop by McDonald’s for a cup of coffee. I saw a welcome signal of a strong economy—even though it may be time to temper expectations somewhat. More on this later.
There, on each table and in each tray, were place mats announcing the chain’s latest employment efforts. Along with rising wages and fringe benefits, financial assistance for high school and college tuition, and career guidance, McDonald’s announced free classes in English as a second language. The firm is giving up to $2,500 a year for employee tuition benefits.
Of course, it’s not just McDonald’s. Walmart, too, is subsidizing employee college tuition for full- and part-time workers, paying the full cost of online programs offered by the University of Florida, Brandman University, and Bellevue University. Going even further to attract workers, mechanical contractors in Colorado and Minnesota are offering plumbers yoga studios, craft beer on tap, and “hang out” rooms to relieve work’s pressures.
Some employers are even rethinking work prerequisites. In May presentations on the economy to business groups, I learned that many are making significant compromises on the old three-way test for entry-level workers: criminal record, drug use, and passing scores on math and English. Being drug free is no longer an absolute. People with criminal records are getting second chances. But evidence of basic math and language skills is still a basic requirement for most jobs.
All of this is normal when unemployment is low. There’s no doubt about it: Labor markets are tight, and there is no letup in sight … for now. The cost of employing workers is on the rise. The St. Louis Fed’s first quarter 2018 total employment cost index, which includes fringe benefits, is up 2.7 percent from a year ago, and has been pacing upward since the fourth quarter of 2016.
When trying to decipher where our economy is headed and when it may be turning up or down, I pay a lot of attention to real-world signals, like the McDonald’s place mats. It may be a good sign, for example, that the oil circles in Walmart parking lots — signs of older, less-expensive cars and trucks — are getting smaller, even disappearing.
On the other hand, the number of pick-up trucks used by heating and air conditioning contractors, roofers, framers and plumbers that are gassing up early each morning at giant filling stations is no longer growing. And I see that the freight trains that pass my home each day headed south, which are carrying containers for export, are not getting longer.
Put another way, it seems that our economy is riding about as high as it can get, at least for now. The surge of new car buying may be over, and those oil spots may stay the same size for a while, even if they don’t grow.
With the threat of trade wars, the promise of interest rate increases, and the movement of immigrant labor being tightened, let’s enjoy the good economy that we have. It’s not likely to get much better than this for a while. In 2017, America’s economy grew by about 2.3 percent in terms of real GDP growth. In the first quarter of this year, it was 2.2 percent. As I see it, the economic and human indicators point to something like 2.8 percent growth for 2018, and about the same for 2019.
Yes, from the way things look, the economy is riding high, but leveling off.
Bruce Yandle is a contributor to the Washington Examiner’s Beltway Confidential blog. He is a distinguished adjunct fellow with the Mercatus Center at George Mason University, dean emeritus of the Clemson University College of Business & Behavioral Science, and author of the new report “The Economic Situation, June 2018.”
