- The January payroll report showed disappointing job gains and more Americans leaving the workforce.
- The report amplified calls for support for President Biden’s $ 1.9 trillion stimulus plan.
- The absence of new aid may cause permanent scarring in the job market, said a former Fed economist.
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The January job report painted a bleak picture of the recovery in the US labor market. And that may be exactly what the Biden government needs to justify its $ 1.9 trillion stimulus package.
The initial readings for Friday’s Bureau of Labor Statistics report were somewhat encouraging. The US added 49,000 non-farm payrolls last month, a sharp reversal of the losses seen in December. The unemployment rate also fell from 6.7% to 6.3%.
Closer inspection, however, shows an economy still struggling to recover. Economists polled by Bloomberg had expected 105,000 new payrolls last month, more than double the additions actually seen. The number of permanent layoffs has increased. Payroll growth in December and November has been revised downwards. And much of the decline in the unemployment rate has been associated with more Americans ending their search for work and leaving the workforce.
For all intents and purposes, the labor market recovery has completely stalled, with 10 million jobs still lost to the COVID-19 recession, Claudia Sahm, a former Federal Reserve economist, told Insider.
“$ 1.9 trillion is the least we should do now,” said Sahm. “After a year, people are tired, the difficulties increase and the longer it lasts, the more permanent the damage is.”
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‘We can’t do much’
President Joe Biden’s stimulus proposal includes direct payments of $ 1,400, an extension to reinforced unemployment benefits and help for state and local governments. Management is considering reducing the threshold for those receiving payments, but no final decision has been made.
The Biden government is already pointing to the report as a green light for the approval of an uncompromised aid package. The current rate of payroll growth would take a decade to achieve full employment, said Biden.
“We cannot do much here. We can do very little. We can do very little and choke,” he added, according to CNN reporter Kaitlan Collins.
The disappointing data “emphasizes the need to grow” and do it quickly, said Baharat Ramamurti, deputy director of the National Economic Council, in Yahoo Finance.
Other officials criticized claims that Biden’s plan could come at a very high price. Larry Summers, director of the NEC under President Barack Obama, said in The Washington Post on Thursday that Biden’s $ 1.9 trillion package is at risk of massive inflationary pressures and should be less.
Jared Bernstein, a member of the Council of Economic Advisers, responded to Summers’ concerns on Friday, adding that Biden’s proposal is primarily aimed at bringing back the lost economic capacity from the pandemic.
“I think he is deeply wrong,” Bernstein told CNN. “We have consistently said that the risks of going too small are far greater than the risks of doing too much.”
To be sure, Democrats took several steps to approve the president’s proposal in the coming weeks. The Senate voted along party lines on Friday morning for a budget resolution that paves the way for the plan’s approval. Although the president has indicated that he hopes to garner some Republican support for the measure, Democrats will soon be able to pass legislation through budgetary reconciliation and without any bipartisan support.
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Raising low-income people
A comprehensive aid package also has a better chance of reviving the pockets of the economy most affected by the pandemic. Where higher-paying jobs were generally less affected by the pandemic, lower-paid industries and service sectors were the ones that reduced payroll the most last year. The latter group should also be the last to recover, as long-term health concerns prevent Americans from spending on services.
The proposed extension to increase federal unemployment insurance may encourage Americans to continue looking for jobs while the economy slowly reopens, Sahm said. The distribution of stimulus checks can encourage Americans to spend more and, in turn, create more demand in small companies that cut payroll, she added.
Even if the United States were adding 1 million payrolls each month, it would still take the rest of 2021 to fully fill the hole the country currently faces. And each month of stagnant growth risks taking more people out of the workforce and making job losses more permanent, Sahm said.
“That’s why it needs to be big and go really fast. Why wait?” said the former Fed economist. “We are not adding jobs. We need to be adding jobs, and this is the way to do that.”
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