Recovery At Risk: Will Covid and Inflation Stall the Jobs Rebound?

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THE CURRENT JOB OUTLOOK

Recovery At Risk: Will Covid and Inflation Stall the Jobs Rebound? by Gregory DeFreitas

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ver the past year, as the world tried to struggle its way out of a global pandemic, the U.S. economy mounted an unusually rapid recovery. Aided by trillions in government funding and a public health campaign that had vaccinated 231 million Americans (70% of our population) by late November, the country seemed poised to enter the new year with a fragile optimism. However, recent months have tested that confidence with rising consumer prices and increasing infections from the Delta and Omicron coronavirus variants.

When infections from the Delta variant began increasing this fall, followed in late November by the Omicron variant, rising uncertainty once again started clouding economic forecasts. Month after month of relatively high inflation rates have darkened those projections even more. In early November, the US Bureau of Labor Statistics reported that consumer prices were averaging 6.2% above the level at the same time in 2020 – the steepest 12-month jump in over three decades! (Figure 2) Alarm bells sounded on Wall Street and in political circles over the perceived threat to the recovery of a possible return to double-digit 1970s-style inflation. Federal Reserve Chairman Jerome Powell told the Senate Banking Committee on November 30th that: “At this point, the economy is very strong, and inflationary pressures are high. It is therefore appropriate in my view to consider wrapping up the taper of our asset purchases.”3 Powell, a Republican banker, is being renominated for a second term as Fed chair by President Biden.

Since last January, the economy has created a massive 5.9 million more jobs. After U.S. unemployment hit nearly 15% during the April 2020 “Great Lockdown,” it took just 17 months for it to drop all the way down to 5%. That is over three times faster than the average time (53 months) it took to reach 5% unemployment after the previous three recessions. The latest establishment surveys by the US Labor Department have found impressive net growth in payroll jobs. November recorded a hiring jump of +210,000. The sectors leading in job gains were business and professional services; construction; manufacturing; and transportation. Unemployment fell in November to 4.2% (Figure 1) and the fraction of the population active in the labor force (either employed or actively seeking work) rose slightly to 61.8%.

Republicans have seized the inflation news as a new weapon to block the Biden administration’s current social safety net bill. So, US Chamber of Commerce economist Curtis Dubay says: “We’re not worried about the long-term. We have inflation in the here and now, and this policy will make it worse in the foreseeable future.”

The job recovery has inspired record numbers to quit their current jobs and spend more time looking for safer and better-quality new ones. A growing number have opted to open their own businesses. The Census Bureau recently reported that, after a 40-year decline in new business formation, last year Americans filed paperwork to start 4.3 million businesses – a 24% increase from the previous year. And much of the new self-employment is among women and racial/ethnic minorities.1 Many others have opted to increase their unions’ collective bargaining demands, some to the point of strikes or to launching union organizing efforts. These pressures have driven positive earnings trends as well: average hourly pay of all production employees rose 5.9% in the past 12 months, and by 13.4% for low-wage restaurant workers

If the central bank ends its bond-buying commitment sooner than expected, interest rates on business, home, auto and other loans would likely rise. While that might slow down price increases, it could also decrease both residential and business investment, thereby slowing the jobs recovery. That would, in turn, threaten working people’s efforts to finally recoup some earnings growth after decades of corporate wage suppression. However, amidst the elevated concern on inflation, the contrasts with the broad 1970s pattern are enormous. The 2021 price increases are still narrowly concentrated in a few industries hardest hit by supply-chain disruptions. Energy and used cars are by far the most affected sectors, each with double-digit inflation for months now. Also, price declines are still underway in sectors central to consumer holiday purchases. For example, since the BLS began publishing more detailed industry breakdowns in Dec. 2019, prices of smartphones have dropped by -29.1% and airline fares shrank -23.7%.

Still, the latest job growth was less than half that of October (+531,000) and the total number of jobs was some -3.9 million below the prepandemic peak of 152.5 million jobs in February 2020.2 Key sectors like health care and leisure and hospitality have had little job growth in recent months and remain well below pre-pandemic job counts. 5


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