Now congressional Republicans are on the verge of passing a $1.5 trillion tax cut plan, which President Trump could sign into law this month. Economists expect the bill to provide at least a modest lift to the economy — but they aren’t sure that’s a good idea. With unemployment so low and the economy fundamentally healthy, a tax cut could lead the economy to overheat, pushing up inflation and forcing policy makers at the Federal Reserve to raise interest rates faster than planned.
“It’s a very poorly timed fiscal stimulus,” said Joseph Song, an economist at Bank of America. “It kind of raises the risk of a boom-bust cycle.”
All Eyes on Wages
Perhaps the biggest question is what Friday’s report will reveal about paychecks. Wage growth has long been the weak spot in an otherwise strong recovery, and the October jobs report held to that pattern: Average hourly earnings rose just 2.4 percent from a year earlier, barely enough to keep up with inflation.
Most economists expect wage growth to pick up as the unemployment rate falls. Other measures of earnings have already shown modestly faster gains, and there are signs that businesses are feeling pressure to raise pay. For the first time in six years, chief executives surveyed by the Business Roundtable, a coalition of big corporations, reported that labor expenses were their biggest cost pressure in the fourth quarter.
“With the unemployment rate this low and with just not enough people coming back into the work force to fill positions, firms are having to resort to offering higher wages,” said Joseph Brusuelas, chief economist of RSM, a financial consulting firm.
Then again, economists have been predicting faster wage growth for months or even years, and it has yet to materialize.
Friday’s report will give the first glimpse of hiring in the holiday season. It could be a complicated picture. Most economists expect a strong holiday shopping season, and preliminary data suggests that Black Friday shoppers spent more this year than last. But brick-and-mortar retailers have been cutting jobs through most of the year, and holiday hiring will most likely be slower than in past years as more Americans do their shopping online.
On the other hand, the rise of e-commerce has also created jobs in warehouses and at delivery services such as FedEx and United Parcel Service, which recently warned of delays because of the volume of online orders.
“We are seeing a lot of jobs being created in e-commerce,” said Catherine Barrera, chief economist of the online job site ZipRecruiter. “Amazon is hiring like crazy.”
The View From Washington
Policy makers at the Federal Reserve have sent clear signals that they plan to raise the benchmark interest rate at their meeting next week. The jobs report would probably have to be catastrophic to change that.
Friday’s report could, however, affect the Fed’s plans for next year. Economists expect the Fed to raise rates three times in 2018. But if the unemployment rate continues to fall — and especially if wages start to rise more quickly — Fed officials could feel pressure to raise rates faster to head off inflation.
The report could also have political implications. Mr. Trump has frequently cited strong jobs numbers as evidence that his economic policies are working. Most economists are skeptical that presidents have much influence over the economy. But with Mr. Trump nearing the end of his first year in office, the report could take on symbolic importance.