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Economy shows underlying strength

Friday was a bad day in certain media and political precincts as the labor market turned in another gangbuster performance in January. The recession may not be imminent after all, and more people are working and making more money. Apologies to Senators Bernie Sanders and Elizabeth Warren and the writers at Bloomberg for the good news.

To be fair to the gloomsters, some economic signals have been negative. Consumer and business confidence has been lower following the stock market’s plunge in the autumn, especially December. The government shutdown suggested a political class that can’t shoot straight. Home prices and auto production are down, and growth in Europe and China is notably slowing.

Yet there was little bad news in the Labor Department’s sunny results for the first month of the year, despite the government shutdown. The economy produced 304,000 net new jobs in the month, 296,000 in the private economy where wealth is created.

Job growth was healthy across most industries, with a notable bump in construction (52,000) and durable-goods manufacturing (20,000). Manufacturing jobs have climbed 261,000 over the last year, 80 percent of them in durable goods. This is what happens when the political class takes its boot off the neck of private business, as the GOP Congress and Trump Administration did for two years.

Job growth has averaged 234,000 over the last 12 months, and 241,000 in the last three. The jobs surge helped the labor participation rate rise again to 63.2 percent and is now up 0.5-percentage point in the last year. All of this is especially impressive for an expansion that is nine-and-a-half years old with a jobless rate of 4 percent.

That rate has bumped up 0.3-percentage point since November, which might signal economic trouble. But the Labor gnomes said that was affected by the government shutdown and how furloughed workers were classified. Jobless claims also rose sharply this week, and any noise in these numbers should fall away in February if that is temporary.

The pace of wage gains slowed in the month, but they are still up 3.2 percent over the last year. Wage gains have averaged 3 percent or more for six months, which is up from 2 percent to 2.5 percent that marked the expansion during the Obama Presidency. With the decline in the rate of inflation below 2 percent, and especially with energy prices falling in recent months, real wage gains are also increasing.

All of this suggests underlying U.S. economic strength despite the slowdown in the rest of the world. The Federal Reserve’s welcome shift this week to a “patient” policy on raising interest rates should also remove near-term uncertainty for business. The biggest policy issue now is trade. If President Trump removes his threat of car tariffs, fulfills his Nafta negotiating promise to remove steel and aluminum tariffs on Canada and Mexico, and strikes a new trade deal with China, growth could accelerate.

The strong job results are a reminder that economic growth is the best incomes policy. Faster growth means a tighter labor market, which means faster wage growth and expanded opportunities for the least skilled. Income redistribution schemes, whether offered by the political right or left, reduce growth and thus hurt the very people they are intended to help. The Trump Administration needs to keep its policy focus on growth above all.

This editorial originally appeared in The Wall Street Journal.