Analysis: Booming job growth is a double-edged sword for Joe Biden

The new jobs report from the Department of Labor makes clear the continued benefits of the economy’s strong and rapid recovery from the pandemic catastrophe. The economy added 431,000 jobs in March and 95,000 more than those previously recognized for January and February. That brought average job gains for the first three months of this year to 562,000.

Wages continued to rise at an annual rate of over 5%. The unemployment rate fell again to 3.6%. Demand for workers has been strong enough and pandemic threats have dimmed enough to lure back many Americans who had previously dropped out of the workforce.

“Record job creation, record unemployment decline, record wage increases,” Biden declared as he celebrated the data at the White House. “People are making more money, they’re finding better jobs, and after decades of being mistreated and paid very little, more and more Americans now have real power to get better wages.”

As Biden’s comments indicated, Friday’s data would have represented dream jobs data for presidents like Ronald Reagan, Bill Clinton, George W. Bush and Barack Obama. Before the coronavirus hit, Donald Trump never came close to that level of monthly job earnings.

But the rise in inflation, which Biden acknowledged, has dramatically altered the context of those gains.

In the four decades since the Federal Reserve removed inflation from the economy in the early 1980s, the threat of a dangerous rise in prices has become a distant memory. When Biden served as Obama’s vice president, annual inflation never even reached 3.5%.

Now inflation is running at an annual rate of almost 8%. American workers’ paychecks are not holding up despite rising wages.

Furthermore, the fact that employers continue to hire so many workers reflects pressures for inflation to continue. Businesses need more workers as they struggle to meet consumer demand for goods and services.

As long as they can’t keep up, prices will continue to rise. And that sours the mood of Americans about the economy and Biden alike.

In part, the president has been a victim of circumstance. The challenge of restarting the economy after disruptive pandemic shutdowns has made it difficult for businesses to supply what consumers want to buy. The rate of inflation has increased throughout the developed world.

The challenge has been exacerbated by pandemic-induced changes in consumer buying patterns. The administration’s assiduous efforts to facilitate supply chain backups at ports and internal transportation hubs can only help at the margins.

Now, the war in Ukraine has introduced a new set of inflationary pressures, most notably in rising gasoline prices. The White House’s attempts to label this “Putin’s price hike” don’t ease the pain of motorists, though the massive release of oil from the Strategic Petroleum Reserve that Biden announced this week may temper further hikes this year.

At the same time, Biden and the Democrats in Congress have contributed to the problem in a way that illustrates the double-edged sword of 2022 economic news.

Even critics acknowledge that the $1.9 trillion US Bailout Plan they pushed through last year hastened the economic recovery. That has helped build and maintain impressive job gains.

But Biden allies also acknowledge that the bailout also fueled inflation. Features like its $1,400 relief checks and expanded, refundable child tax credits spurred consumer demand that businesses can’t meet.

That assistance may also have contributed to inflation-producing labor shortages by allowing some Americans to take their time getting back into the workforce. Data compiled by financial firm JP Morgan Chase shows that average bank balances at the end of 2021 remained slightly above pre-pandemic levels, cushioning the effects of rising prices.

The JP Morgan report said that was especially true for low-income workers, who have been in particularly short supply as the pandemic slowdown boosts business at hotels, restaurants and other service providers. But wages for low-income workers that outpaced inflation last year now appear to be lagging.

The Federal Reserve has announced more urgent efforts to curb inflation through higher interest rates. That will make it more difficult to maintain current levels of job growth. So will the simple fact that the economy has all but restored pandemic-induced job losses, putting job changes back into more normal and familiar territory.

“My biggest concern is if the pace of hiring slows and the pay increases continue,” said Betsey Stevenson, a former Obama administration economist who now teaches at the University of Michigan. That would be a sign of labor shortages that would extend inflationary pressures.

Before Putin invaded Ukraine, economists generally expected inflation to cool down during 2022. There remains substantial debate about how fast it will cool down now and if the US is out of their jobs.

“I think bad news on inflation is more likely to be more transitory than good news on jobs,” said Justin Wolfers, also an economist at the University of Michigan. “And if I went back two years ago and was offered the choice of risking overheating the economy a little bit, as we did this time, or failing and creating a long, slow, tepid recovery, as we did in 2008, I would have chosen the risk of overheating.” .

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