Biden says jobs report bolsters case for government spending

 


President Joe Biden portrayed the May jobs report as a jumping-off point for more spending on infrastructure and education to keep growth going — essentially an argument for his agenda. But the employment numbers issued Friday also hinted at the possible limits of how much government aid can be pumped into the world’s largest economy.

“We’re on the right track,” Biden said. “Our plan is working. And we’re not going to let up now. We’re going to continue to move on. I’m extremely optimistic.”

The May jobs report showed the complexity of restarting the economy after a pandemic shutdown and the mixed signals that can result when an unprecedented surge of government spending flows through the economy. Biden can congratulate his administration on 559,000 jobs being added and a 5.8% unemployment rate, yet the hiring was lower than what many economists expected after his $1.9 trillion relief package.

Biden’s challenge is to convince Americans that his administration’s relief efforts to date have done well enough to sustain faster growth, instead of creating inflation and imbalances that could jeopardize public support for his plans to invest at least another $3 trillion in roads, clean energy, children and schools.

The report suggested that not enough people are seeking work, a possible problem for a president who is hoping that his rescue package will put the country back at full employment by 2022. While Biden viewed the jobs figures as a full-speed-ahead argument for his agenda, several economists were urging a degree of caution to see whether more Americans will start looking for jobs after the steep losses caused by the coronavirus pandemic.

Republicans, for their part, found ways to turn the jobs report into an argument against Biden’s plans to finance more government programs through tax increases on the wealthy and corporations. Their concern is that generous unemployment benefits have prevented people from accepting jobs and that the government aid — much of it still forthcoming — will fuel inflation.

Texas Rep. Kevin Brady, the top Republican on the House Ways & Means Committee, said Biden should divert more of the COVID-19 relief money to infrastructure.

“If we want to help families build their lives and rebuild the U.S. economy for the long term, it’s time for the emergency spending and the endless government checks to end,” Brady told Fox Business.

The big red flag in the jobs report was that the labor force participation rate ticked down to 61.6%. Despite the government spending, it’s essentially unchanged from where it was last summer and down from 63.3% before the coronavirus struck 14 months ago. The lower participation rate means that a healing economy is not encouraging enough people to find work.

For some economists, it’s evidence that Biden’s $1.9 trillion relief package was likely excessive. The government spending has so far generated more demand for workers and goods than the economy could produce, possibly indicating some Republican criticisms.

“We have a general sense of what’s going on at this point: We are not able to create the jobs fast enough relative to the demand we’re infusing into the economy,” said Marc Goldwein, senior vice president for the Committee for a Responsible Federal Budget.

Goldwein and other economists said they believe that Biden’s aid package helped the economy, though the same results might have been achieved for less money. There is also the possibility that the relief package’s expanded unemployment benefits propped up consumer spending and that forthcoming state and local government aid kept workers on payrolls — all of which could have helped boost the jobs totals.

Harvard University professor Jason Furman, a former chief economist in the Obama White House, said it was surprising that the participation rate fell in a month when vaccinations were advancing, COVID-19 infections were declining, job openings were up and wages were rising.

Because demand for workers is greater than their current supply, the silver lining for Biden is a sharp jump in average hourly earnings. That’s a clear benefit to working Americans that can be sold on the campaign trail, but the risk of wages rising too quickly is levels of inflation that could choke off growth.

Furman urged patience in a recent paper, arguing that the demand for workers will most plausibly lead to an increased supply of people seeking jobs.

“In the interim, there would be more price inflation, but over time it would be offset by an economy that returns to something that could even be better than its pre-pandemic path,” he wrote in a paper with Wilson Powell III for the Peterson Institute for International Economics.

Biden acknowledged the difficulty of reviving the economy after the shutdowns tied to the pandemic, noting that it was not as simple as flicking a light switch. One of the major problems is supply bottlenecks for computer chips, used cars, and an array of raw materials that can cause higher prices. Those supply bottlenecks in the short term are raising prices and could make it costlier to fund infrastructure projects.

Brian Deese, director of the White House National Economic Council, said the administration plans to release next week a review of how to make supply chains more resilient. But some of the current mismatches are short-term and will need to be resolved through market forces.

“On a lot of these issues,” Deese said, “there is no immediate short-term, magic bullet fix.”

The American job market is in an odd place.

Consider that in May, employers added 559,000 jobs. In ordinary times, that would amount to a blockbuster burst of hiring for one month, and the response would be an outpouring of cheers.

These are not ordinary times. In the wake of a violent recession that paralyzed the economy and triggered tens of millions of layoffs, the nation still remains 7.6 million jobs short of the number it had in February 2020, just before a viral pandemic erupted. So the government’s May jobs report Friday registered as a mild disappointment, coming after an even weaker month in April.

In one sense, the modest pace of hiring is surprising: The economic rebound is accelerating, and the need for workers is surging. COVID-19 is quickly receding in the United States — new cases are way down to an average of just over 16,000 a day, from 250,000 in early January — as more Americans are vaccinated.

Yet economists note that the economy is in an awkward place: It’s recovering from a devastating crisis almost as fast as it had succumbed to it. In fact, the very speed of the rebound helps explain why job growth remains modest. Businesses are reopening as fast as they can to meet the pent-up demand by consumers to shop, travel, dine out and attend sporting and other entertainment events. As they encounter that surging customer demand, they are struggling to find enough workers and supplies as fast as they need them.

Over the next few months, economists expect the labor shortage — and the bottlenecks in supply chains that have contributed to it — to lift and eventually clear the way for more robust job growth.

“The details of the report again showed a clear impact from labor supply constraints, and we continue to expect stronger job gains later this year,” Jan Hatzius, chief economist at Goldman Sachs, said in a research note.

Here are five takeaways from the May jobs report:

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UPS AND DOWNS

The monthly job numbers have been bouncing around as the economy navigates a bumpy transition from COVID-19 lockdown to boom times. During this transitional period, economists caution against trying to predict hiring patterns from month to month.

“All these employers put up help-wanted signs at the same time,” noted Mark Zandi, chief economist at Moody’s Analytics. “It’s taking a few weeks for workers to take the jobs.”

Over the past few months, job growth has gone from 233,000 in January to 536,000 in February to 785,000 in March, to 278,000 in April, to 559,000 in May. As recently as December, the economy had lost 306,000 jobs.

Step back, though, and the job market looks far less volatile: The three-month hiring average was 518,000 in March, 533,000 in April, and 541,000 in May.

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BACK TO THE OFFICE

As the coronavirus has receded and the economy has reopened, work-from-home Americans have been trickling back to their traditional workplaces. The proportion of jobholders who said they teleworked from home declined in May to 16.6% last month from 18.3% in April, extending a sharp drop from 35.4% a year earlier. (The figures include people who worked at home sometime during the previous four weeks because of the pandemic.)

Leslie Preston, a senior economist at TD Economics, called the decline in teleworking “another sign that work-life is gradually returning to normal.”

In another signal of encroaching normality, the number of people who said they had decided not to seek work because of the pandemic dropped to 2.5 million last month from 2.8 million in April.

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RISING WAGES

Pay is up.

Average hourly earnings rose by a healthy 0.5% in May, on top of a 0.7% increase in April. Last month’s wage growth was especially impressive considering that 52% of the added jobs came from the traditionally low-wage leisure and hospitality sector. What that means is that many of these workers are earning higher wages from employers desperate to attract or keep them. Many large chains, including Amazon, Walmart, Costco, and Chipotle have begun raising pay.

For nonsupervisory workers in leisure and hospitality — including restaurants and hotel employees — hourly wages rose 1.2% last month from April and 8.8% from a year ago.

Likewise, rank-and-file construction workers, benefiting from a housing boom, enjoyed a 4.4% wage increase in May compared with a year earlier. And amid a surge in online shopping and deliveries, transportation and warehouse workers received an average 3.5% hourly wage increase over the previous 12 months.

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PROGRESS FOR THE JOBLESS

For months, employers have been recalling workers they had temporarily laid off after the pandemic hit and forced them to close or scale back their operations. In May, the number of Americans on temporary layoff dropped by an additional 291,000 to 1.8 million — down 90% from a staggering 18 million in April 2020.

Even people who lost their old jobs permanently made progress last month: The number of such people dropped by 295,000 in May to 3.2 million. But that is still up 59% from 2 million in April 2020. Nearly 3.8 million Americans — about 41% of the jobless — have been out of work for six months or more.

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FALLING UNEMPLOYMENT FOR PEOPLE OF COLOR

The jobless rates for Black and Hispanic Americans fell sharply last month: 9.1% of Black workers were unemployed in May, down from 9.7% in April. And 7.3% of Hispanics reported being out of work, compared with 7.9% in April. Like the overall U.S. unemployment rate, those figures represented the lowest such jobless figures since March 2020.

Still, Black and Hispanic unemployment remain well above the rate of joblessness for white Americans, which was 5.1% in May, down from 5.3% in April.

Hotels, restaurants, and other businesses are boosting pay as they try to rebuild their staffs and meet increasing demand from Americans ready to venture out as pandemic-related restrictions are lifted and more people are vaccinated.

But it is unclear if the increases will be sufficient to entice enough workers back to close the employment gap remaining in the sector hit hardest by COVID-19 job losses.

Average hourly earnings for workers in leisure and hospitality rose to $18.09 in May, the highest ever and up 5% from January alone, according to Labor Department data released on Friday. Pay rose even faster for workers in non-manager roles, who saw earnings rise by 7.2% from January, far outpacing any other sector.

That higher pay could be a sign that companies are lifting wages as they seek to draw people back to work after more than a year at home. Some businesses are struggling to keep up with higher demand as more consumers, now fully vaccinated, get back to flying, staying in hotels, and dining indoors. Job gains in leisure and hospitality this year have so far outpaced gains in other sectors.

But it is too soon to know whether the boost will be enough to help speed up hiring at a time when many workers are still facing other obstacles, including health concerns and having to care for children and other relatives.

"The fact of the matter is, the pandemic is still going on," said Daniel Zhao, a senior economist for Glassdoor. "The economy is running ahead of where we are from a public health situation."

Some 2.5 million people said they were prevented from looking for work in May because of the pandemic, according to the Labor Department. And just about 40% of Americans are now fully vaccinated, meaning that many workers may still be concerned about the health risks they might face on the job, Zhao said.

STILL IN A HOLE

Employment in leisure and hospitality is still in a deep hole when compared with pre-pandemic levels.

The industry added 292,000 jobs in May, with about two-thirds of that hiring happening in restaurants and bars. But overall employment is still down 2.5 million jobs, or 15% from pre-pandemic levels, more than any other industry.

If job gains continued at the pace seen in May, it would take more than eight months to replace the jobs lost. And it's not yet clear that all of the jobs will be recovered, especially if business travel remains depressed or if other habits change after the pandemic.

Some people who previously worked at hotels or restaurants moved on to other types of jobs during the pandemic, such as packaging goods at a warehouse, and it's too soon to know whether they will switch back as more of the economy reopens, said Zhao.

Some Republicans and businesses struggling to find workers say generous unemployment benefits are slowing down the labor market recovery by making it easier for workers to stay home. Others say the benefits may be helping workers cover the bills while they wait for schools to reopen, receive vaccinations and resolve other obstacles that made it difficult for them to work during the pandemic.

"People were making decisions based on those other factors, but they had the wherewithal to make those choices because of the extended unemployment benefits," Cleveland Federal Reserve Bank President Loretta Mester said during an interview with CNBC.

Either way, any frictions caused by unemployment benefits may be resolved over the next several months as those benefits are reduced. About half of the states are putting an early end to a $300 federal supplement to weekly unemployment benefits, winding them down as soon as June 12. The supplement expires nationwide on Sept. 6.

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