The government reported the economy added 850,000 jobs in July – a welcome pickup from the slower pace of job growth over the previous three months and a sign that overall economic growth is now tracking stronger than in the first quarter of this year.
Yes, we are still roughly seven million jobs down from pre-pandemic levels of employment -unemployment among Black and Hispanic workers remains distressingly high and millions have yet to return to the labor force. But if policymakers hold steady, we are also on the verge of creating a foundation for a more inclusive, resilient recovery much more robust than what we experienced after the Great Recession of 2008, despite having suffered a much bigger jobs hit.
The early successes of this recovery stem from how both Congress and the Federal Reserve tackled the pandemic recession using a new approach: go early and go big on policy support. As the economy shut down, policymakers bucked some conventional wisdom and entrusted households and businesses with cash support which typically had few strings attached. Congress passed stimulus measures with the general mantra that the cost of doing too little was greater than potentially doing a bit too much.
In the last downturn, when the federal government did less, people in their prime working years were still dropping out of the labor force six years into the recovery, and labor’s share of national income fell to an all-time low in 2014. Mortgage delinquencies and foreclosures remained near record highs. In 2011, the gap by which unemployment among Black people exceeded that among white people had risen to a multi-decade high.
This time, however, we are seeing the benefits of policymaking that wasn’t lacking. Businesses which were expected to use funds to pay employees and cover essential operating expenses generally did just that. Meanwhile, workers who were unemployed received additional cash support, which they put right back into the economy to cover necessities and in many cases to buy some stay-at-home goods.
The current burst in growth and hiring has had an unwelcome companion – inflation. The Fed’s preferred gauge of consumer inflation rose 3.9% (annual rate) in May from a year earlier – and some believe it could go higher in coming months – thus fueling intense speculation among adherents of conventional economics about whether we will see a return to the high inflation of the 1970s or a loss of confidence in the U.S. dollar.
Still, it is worth remembering there is a deliberate reason for this new policy approach. After years of consideration, the Federal Reserve implemented a new approach to monetary policy last year with a promise to seek a “broad based and inclusive” realization of maximum employment: to keep credit cheap and accessible long enough to produce a strong labor market which could narrow social disparities and boost productivity.
This easier approach to monetary policy was accompanied by the earlier fiscal stimulus enacted by President Trump in 2017 – the large tax cuts and deregulation – and were implemented during an economic expansion. Traditionally, tax cuts were reserved for use during recessions.
The new framework won. Just before the pandemic, there was steady, non-inflationary growth, stronger wage growth for lower-wage workers and the narrowest gap between Black and white unemployment rates on record.
Now early evidence shows this new, more generous economic framework being applied by the Biden administration in its own way – is being proved right again, at least for now.
Shortage: Employers Can’t Hire Enough Workers
Businesses have been complaining of worker shortages this year, and as a result, many are offering generous sign-on bonuses which can be up to several thousand dollars. Many employers complain that government stimulus payments are causing millions of Americans to avoid working altogether.
The Labor Department reported in July that the number of unfilled jobs rose to a record 9.3 million at the end of May. In the week ended June 18, total job postings were up around 30% from February 2020 levels. The number of job openings and the number of unemployed people actively looking for work were almost identical at the end of May at 9.3 million,
A recent survey by the job placement platform INDEED showed most unemployed workers are actively searching for jobs but not urgently – which may be a reflection of health concerns, challenges with child care and/or the fact that some have built up a financial cushion – and gives them leverage to say no to bad, low-wage offers.
Others have greater financial breathing room because of income from a working spouse. INDEED maintains that stimulus support is not discouraging work, but rather giving workers a stronger bargaining hand. This may be disruptive to business models which have become reliant on abundant cheap labor, but those which adapt are likely to be more productive.
Making matters worse, the so-called “quits rate,” which measures how many people left their jobs in any given month, rose to a record high recently. In April, nearly 4 million workers quit their jobs, the most ever. Most economists agree a rising quits rate is a sign many workers believe there are better opportunities available elsewhere.
Conclusions – Enjoy It/Make Money While It Lasts
From just about every angle, the U.S. economy looks strong and may get even stronger just ahead if the Fed’s forecast of 7% GDP growth this year is accurate. The Fed estimates GDP growth will slow in 2022 but remain at a solid 3.3% next year and 2.4% in 2023.
My only big concern here is exploding debt. Earlier this month, the Treasury Department said our annual budget deficit for fiscal year 2021 will again surpass $3 trillion – thus pushing our national debt above $30 trillion by early next year. Meanwhile, corporate debt has exploded to over $11 trillion, the highest level ever recorded by far.
My concern continues to be that this debt binge will end very ugly at some point and deliver us a new, deeper financial crisis. So, enjoy these good times and make money while they last!