Trump's 25 million jobs aim spells inflation
The ambitious nature of some of Donald Trump's stated targets shows how constrained the US economy is at this stage of the cycle.
Incoming US president Trump has promised to grow the US economy at 4% per annum and create 25 million jobs.
These are ambitious targets. The US economy has not grown at 4% in a sustained manner since the late 1990s and over the past five years has only averaged 2% (see chart 1).
The 25 million jobs target is even more of a stretch.
According to the latest report from the US Bureau of Labor Statistics, the number of people unemployed in the US is just under 8 million. We can add in those who are working part-time for economic reasons which, assuming each could double their hours, would give the equivalent of another 3 million jobs.
And, we can also include the roughly 600,000 who are discouraged by the current state of the labour market, but would otherwise seek work.
This gives a total of 11.6 million, which if achieved would mean employing everyone who wanted a full time job and take the unemployment rate to zero. The lowest recorded unemployment rate was 2.6% in May 1953 (seechart 2).
Growth in the labour force would help and might add another 3 million over the next five years, but could equally likely be offset by slower immigration.
To hit the 25 million target from here would require a significant increase in the participation rate, with more people of working age joining the workforce. In recent years this has been in decline, so a reversal would be needed followed by a rise to new highs - around 68% on our estimates (chart 2).
Of course, the Trump administration would say that people should not take these targets so literally: it is the direction of travel which matters. However, they do illustrate how constrained the US economy is at this point in the cycle.
The concern is that applying significant fiscal stimulus to the economy at such a late stage will only push wages and inflation higher.