President Trump delivers remarks about his recent trip to Asia in the Diplomatic Room of the White House on Nov. 15. (Kevin Lamarque/Reuters)

President Trump’s enthusiastic embrace of positive economic indicators that he disparaged on the campaign trail hit a record Monday morning.

Trump was responding to a segment on Fox News’s “Fox and Friends” featuring Fox Business’ Stuart Varney, in which he cited numbers from Goldman Sachs.

“The economy is fairly strong already, and we’ve got big companies like Goldman Sachs predicting that the unemployment rate will drop all the way down to 3.7 percent next year because we’ve got this momentum going,” Varney said. Ergo, Trump’s tweet.

On the campaign trail, Trump consistently argued that the unemployment numbers being touted by the administration of President Barack Obama failed to capture the true weakness in the economy. The “real” unemployment rate was somewhere over 20 percent, he argued repeatedly during the campaign — even as the official figure continued to slip downward. As president, that official figure coupled with the increase in the stock indexes have been a centerpiece of Trump’s arguments for his own presidency.

But, ironically, the very-low unemployment rate isn’t necessarily good news.

Varney was citing Goldman Sachs’ statement released Friday.

“The U.S. economy heads into 2018 with strong growth momentum and an unemployment rate already below levels that Fed officials view as sustainable,” it read. The firm’s analysts speculated that the Federal Reserve would have to increase interest rates as many as four times next year to tamp down inflation.

“The strength,” the analysts wrote, “is becoming ‘too much of a good thing’ and containing further overheating will become a more urgent priority in 2018 and beyond.”

How is low unemployment too much of a good thing? We asked Nicole Smith, chief economist at the Georgetown University Center on Education and the Workforce.

“The 4 percent number is not exactly a number that economists are necessarily happy with,” Smith said. “What’s been happening here is, if we look historically at other times when the unemployment rate has fallen below 4 percent, it’s times where it was the boom phase just before recession or just after a major war period.”

Using Federal Reserve data, we can visualize that. In the 1950s — during the Korean War — and late 1960s, unemployment rates were that low. The last time the unemployment rate fell below 4 percent, a recession ensued shortly thereafter.


“What we find is that the low unemployment rate is often associated with a boom phase just before a recession,” Smith said. “It’s almost a precursor for a recession or a precursor for another slumping economy.

Historically, low unemployment has often led to higher rates of inflation. (The Economist has a good background on this complicated relationship.) “There’s a short-term trade-off between unemployment rates and inflation,” Smith said, pointing out that this is why the Federal Reserve might want to increase interest rates. (This is part of the “overheating” to which Goldman Sachs referred.)

The efficiency at which businesses are employing part-time workers, she said, was one of the factors pushing the unemployment rate down. Normally, lower unemployment rates will drive wages up as employers compete for labor. But wages aren’t rising, and Smith said she believes that part of it is because employers are leveraging the part-time labor market, offering lower pay and fewer benefits. The unemployment rate cited by Trump and Varney only includes those looking for work, not those working part-time. So the rate is — as Trump argued during the campaign! — actually higher than the top-line number might suggest.

“My short answer is: It’s not a good thing,” Smith said of a rate below 4 percent. “Even if it happens, it might be a precursor for recession.”

Varney’s segment on “Fox and Friends” was preceded with a graphic touting the most recent unemployment figure, identifying it as the lowest rate since December 2000.


By March 2001, the U.S. economy was in a recession.