The economy is booming. Why isn’t America happier for it?
US unemployment is at its lowest since the pandemic, wages are up, 6.1 million jobs have been created since last December and economic growth is expected to reach nearly 6% this year, after inflation.
Each of these statistics is great news. The unemployment rate of 4.2% in November is a sharp reduction from the record 14.8% reached in April 2020, as the pandemic began to be felt.
The 4.9% growth in average weekly earnings in November from a year earlier is one of the strongest wage trends of this century. And the growth in gross domestic product is well above the rate of any year since 2000 and certainly the 2000-2019 average, which was 2.08%.
The pandemic continues to play a fairly large role in what we see as the ebb and flow of the labor market in general, but we have created over 6 million jobs this year.
Elise Gould, Institute for Economic Policy
What not to like?
A lot, it seems. The University of Michigan consumer confidence index fell 12.8% this month compared to a year ago. Washington political experts are already overturning President Biden’s chances of re-election in 2024 and are even more caustic about Democrats’ chances of retaining majorities in the House and Senate in the November midterm elections.
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In the public mind, what should be considered a “Biden boom” has encountered two headwinds.
“I don’t think the public will really accept the good news about the economy until they feel more confident about the pandemic,” says Robert J. Shapiro, former economic adviser to the Clinton and Obama administrations who now runs his own consulting firm, Sonecon. ” It’s a thing. The second thing is that there is a competing story, and that is inflation.
Shapiro notes that while the data showing a recovery is much stronger than the inflation statistics – in the sense that the recovery has continued since late 2020 and inflation only became an issue during in recent months – inflation has been felt most strongly in two areas where people tend to shop on a weekly basis, gasoline and food.
Given the implications of economic conditions for political outcomes, it’s worth considering what’s really going on in the U.S. economy and what goes into people’s assessments of how they do it.
There is no doubt that the economy is recovering from the damage caused by the pandemic in 2020. It is fashionable, and not entirely inaccurate, to point out that governments – especially presidents – have less power to influence economic growth than is generally believed.
In this case, however, a wave of fiscal stimulus saved the economy from a deeper recession than it might have suffered from the pandemic, and progressed through 2021.
The stimulus includes a series of stimulus and bailouts, including household checks and increased unemployment benefits that began in 2020 and continued this year.
Biden’s US bailout, enacted in March, included several relief provisions for middle-class and working-class households, including a child tax credit that aims to provide up to $ 3,600 per child to families next year.
Monthly payments to households covering half of the benefits end this month, unless Congress acts to extend the program, with the balance to be paid once families file their 2021 tax returns. next year.
The nature of the recovery, however, confuses even those whose fingers are closest to the pulse of consumers.
In a recent interview with The Associated Press, for example, Bank of America Managing Director Brian Moynihan claimed that consumers are “spending money at a faster rate than I’ve ever seen.” , based on evidence from the bank’s debit and credit cards. He added: “Now they are concerned that these costs are rising faster than their wages. It was a guess, based on statistics on consumer confidence that weren’t reflected in spending patterns.
There is also the tendency of the press, exemplified by the Washington Press Corps, to view the economy through a political prism – that is, how conditions will affect the fortunes of supporters – without scrutinizing too much. near the countless undercurrents swirling beneath the surface of the rough figures.
They are also inclined to assume that conditions today will be the same as tomorrow, except more: 2022 and 2024, unless it is even higher.
Let’s start with consumer behavior. As Moynihan attested, sales are on fire. Consumers spent $ 639.8 billion in restaurants and retail stores in November, according to Commerce Department figures released Wednesday. This is an increase of 18.2% from November 2020, well above the inflation rate of 6.8% over the same period.
Several factors are contributing to the spike in spending. One is the resumption of employment.
“There is reason to believe that we are on the right track” for the health of the labor market before the pandemic by the end of next year, Elise Gould, Senior Economist at the Institute for Labor-Based Economic Policy, said. “The pandemic continues to play a pretty big role in what we see as the ebb and flow of the labor market in general, but we’ve created over 6 million jobs this year, a much faster recovery than we did. have seen since the Great Recession. ”
Not all employment statistics flash bright green, but some are natural laggards. One is the labor force participation rate, defined as the share of the working-age population that has a job or is actively looking for a job.
The rate had reached 63.4% in January 2020 after falling to a post-recession low of 62.4% in September 2015, then was forced to 60.2% in April 2020 by pandemic shutdowns. In November, the rate stands at 61.8% – still well below the pre-pandemic figure, but rising.
The rate illustrates the employment disparities in America – the participation rate of black workers and women fell further during pandemic shutdowns and recovered more slowly than that of white men.
Wages have increased almost everywhere, according to government figures. It is true that for many workers the most recent wage gains have been eroded by inflation, but this is not the case for everyone.
Leisure and hospitality workers (restaurant and hotel workers who were among the main victims of pandemic shutdowns) have enjoyed wage increases above the annual inflation rate since June – 12, 3% in November compared with a year earlier, while inflation increased at an annualized rate of 6.8%.
This is an indication of the unusual leverage that workers in these sectors enjoy due to their scarcity – employers have been forced to raise wages to attract workers after the pandemic highlighted the essential misery of jobs. front-line food and hoteliers in America.
Concerns about the pandemic may have a lot to do with Americans’ reluctance to accept the good news about the recovery – especially with the prospect of further closures to deal with the Omicron variant. But it seems clear that inflation is the dominant economic discourse today.
We wrote recently that the current price spike has been misinterpreted – not primarily the product of money supply-driven economic overheating. On the contrary, as Gould observes, “the inflation that we see is mainly due to bottlenecks in the supply chain, not to wages which are inflating uncontrollably.”
Essentially, the eagerness of consumers to spend on goods has outstripped the pace of manufacturing and the ability of seaports to accommodate shipments. Ports, however, reduced their arrears and industrial production rose – up 5.2% in October from a year earlier, according to the Federal Reserve, including a 2.6% increase in consumer goods.
Gasoline prices are expected to decline, following the path of crude oil prices. Government analysts expect spot prices for Brent crude oil, the international benchmark, to drop to $ 71- $ 73 per barrel in early 2022, up from $ 84 in October. The government expects gasoline prices to drop 15% next year, from an average of $ 3.39 per gallon in November.
This suggests that the Federal Reserve must act cautiously in its efforts to fight inflation. The Fed on Wednesday opened the door to up to three interest rate hikes next year, a sign that it is ready to use the monetary brakes to cool the economy.
But these measures could stifle job growth, especially in the low-wage employment landscape, just as the labor market is returning to pre-pandemic health.
“Slowing down the economy is not the right decision,” says Gould. “Slowing it down prematurely could hurt millions of workers who haven’t been able to return to the market. “
The stakes for the coming months could be more political than economic. “Biden needs to get inflation under control,” Shapiro says. “But there’s not much the president can do about inflation. We don’t have a lot of tools to fight inflation outside of the downturn in the economy. However, this has its own pitfalls.
Will the public end up taking an interest in the economy? This can take time, as people’s perceptions of economic conditions tend to lag behind changes in those conditions, sometimes by months. As long as the inflation rate remains telling and the pandemic looms on the horizon, what Shapiro describes – accurately – as “historic gains in jobs and incomes and real growth” will be ignored.