The December drop, which left the unemployment rate at 6.7 percent, suggests that the distribution and adoption of coronavirus vaccines should increase rapidly in order to avoid much worse damage and allow for potential recovery in the spring and summer.
And it will give Biden and Democrats more leeway to force more trillions of dollars in stimulus spending – by whatever legislative means are available – including significant aid to state and local governments. It also means that Democrats will likely be able to approve enough direct money to reach the “$ 2,000 check” level they have long supported, including the $ 600 checks approved by Congress and signed by Trump last month.
“The economy went back in December and there are still 11.5 million jobs left where we were and the biggest problem was the virus and the expiration of stimuli,” said Jason Furman, a Harvard professor who served as chairman of the Council of Economic Advisers under President Barack Obama. “Much more action is needed to control the virus and support the economy. And I think that will be enough to generate major improvements throughout 2021 ”.
The December jobs report consolidated a strange legacy for Trump. The nation will have millions of jobs less than when it took office, partly due to a slow and hesitant federal response to the coronavirus. But the stock market has recovered all of its spring losses and is now breaking records once again, as many companies that thrived during the blockades soar and investors bet on a stronger 2021.
The bifurcation has led to a radical “K” shaped recovery, in which the top level of workers have largely, if not completely, recovered, while tens of millions of Americans in low-paid service jobs suffer. Economic inequality, which was already bad before the virus arrived, is now at levels never seen since the 1920s, before the Great Depression. Reversing this trend is among Biden’s top priorities. And now he has more weapons at his disposal, with the smallest Senate majority after the two Democratic special election victories in Georgia.
Biden will have full control over Washington – although he does not have an obstruction-proof majority in the Senate – during the first two years of his term. And his economic advisers plan to focus heavily on spending to boost the distribution of vaccinations, support struggling state and local governments, improve American infrastructure, further expand unemployment benefits and inject more money directly into families.
Economists and Wall Street analysts say that part of the recent market bustle is based on the assumption that Biden will be able to offer much of that, even if Democrats decide not to blow up the legislative obstruction, which requires 60 votes in the Senate to be overcome.
But they will have multiple opportunities to use the “budgetary reconciliation” vehicle to approve significant spending increases with a one-vote margin in the Senate. There is also the chance that more Republicans in the Senate will consider the need for greater spending on stimuli, given the wave of new coronavirus cases and the slow launch of the vaccine.
“With the Georgia elections giving Democrats control, we should expect to get a very large, targeted fiscal aid package in the first quarter of the year, which investors have clearly taken advantage of,” said Joseph Brusuelas, chief economist at RLM consultancy. “We are going to get a targeted fiscal aid package, then another stimulus package, and then infrastructure. And all of those things are huge. ”
State and local aid will be especially important, as states are already struggling to pay billions in extended benefits approved by Congress last month, leading to several weeks of payment delays in places like California, Michigan, Florida and Washington. Losses in state and local government jobs forced by lower tax revenues from the Covid era and the need to balance budgets are also reducing the number of national jobs.
Failing to approve higher stimulus spending could lead the economy to a double-dip recession or a repeat of the slow, hesitant and uneven recovery that followed the 2008 financial crisis. Biden’s team, many of whom have worked in government over the years Obama, is determined to learn the lessons from the last major slowdown.
Even so, even with large stimulus spending, recovery will depend to a large extent on the effective and widespread adoption of vaccines. And yet, it can take years to return to economic conditions before the virus arrives. “I am concerned that some of the scars are extensive enough that we are far from fully recovered by the end of 2021,” said Furman. “Today’s number expands what was already an open window for more support for the economy, but we will not be in perfect condition until 2022 or 2023. It will take a while in some places.”
Job losses in December, which ended seven months of gains after the huge virus-induced declines, occurred mainly in the service sector, where restaurants and bars reduced 372,000 seats as cold weather and new blockages limited demand. Overall, leisure and hospitality employment – which includes hotels, tourist sites and other categories – fell 498,000. The gains in professional and commercial services, retail and other areas were not enough to offset the giant losses elsewhere. Public jobs declined by 45,000 amid increasing budget cuts across the country.
There are now about 11 million unemployed and the unemployment rate remained at 6.7%, well below the Covid era peak of more than 14%, but still double what it was before Covid arrived. And there are still nearly 20 million Americans with some form of unemployment assistance.
But Wall Street traders and many economists remain hopeful that the drop in jobs will be reversed earlier this year, given the prospects for vaccines and more fiscal aid. If any of these things fail, however, the numbers can get significantly worse.
“While we are very optimistic about the medium to long-term outlook for the U.S., we have to prepare for more bad economic data that could last until the second half of 2021,” said James Knightley, chief international economist at financial firm ING, wrote in a note to customers on Friday.