Joe Biden, the US president, defended his plans for a $1.9tn fiscal stimulus package after data showed the economy creating a paltry 49,000 jobs last month as it struggled through the latest surge of coronavirus infections.
Speaking from the White House alongside Janet Yellen, the Treasury secretary, Mr Biden said the “biggest risk” on fiscal policy was not if the US government went “too big” but rather “too small”, stifling the rebound.
The US president suggested he wanted to avoid repeating the mistakes made in the aftermath of the financial crisis, when the Obama administration was forced to shift quickly to deficit reduction amid Republican opposition to more spending.
“The recovery could have been faster, and even bigger,” Mr Biden said. “Today, we need an answer that meets the challenge of this crisis, not one to fall short.”
The small increase in non-farm payrolls last month partly reversed a dip in job creation during December as sectors such as leisure, hospitality and retailing continued to shed jobs. Gains were concentrated in government employment and professional and business services.
The unemployment rate dropped to 6.3 per cent from 6.7 per cent in December, although that was driven by workers exiting the labour force — a discouraging trend.
Alicia Levine, chief strategist at BNY Mellon Investment Management, said the report served as a reminder of the extent of the damage caused by the pandemic. “What is really disheartening is the decline in the labour force participation rate,” she said. “That is never something you want to see.
“The real risk to the recovery here is the 10m people who are not working, who were working in February of 2020,” Levine added. “There is plenty of money sloshing around supporting businesses, supporting markets and supporting asset prices, but on the ground, there are sectors that just may not come back.”
The weakness of the US jobs market has been one of the main catalysts for Biden’s drive to enact a $1.9tn economic stimulus plan during his first weeks in the White House.
While Biden has engaged in some negotiations with moderate Republicans on a compromise, he is leaning towards passing a version of it with only Democratic support, to avoid seeing it watered down excessively.
Early on Friday, the US Senate passed a bill approving a process in the upper chamber that will allow Democrats to approve Biden’s stimulus measures with a simple majority of votes. Friday’s bill was approved with Kamala Harris, the vice-president, casting the tiebreaking vote after a 50-50 split between the two parties.
The potential for large-scale new economic stimulus, along with hopes for widespread vaccination distribution, has bolstered confidence in a significant US economic recovery in 2021, after last year’s contraction.
Jay Powell, the Federal Reserve chair, and other US policymakers have warned that the economy remains vulnerable to setbacks because of the trajectory of the virus as well as the structural shifts in the economy, including long-term scarring, associated with the pandemic.
But Lawrence Summers, the former US Treasury secretary under Bill Clinton and Harvard University professor, warned that Biden’s plan may be excessive.
“The Biden plan is a vital step forward, but we must make sure that it is enacted in a way that neither threatens future inflation and financial stability nor our ability to build back better through public investment,” he wrote in an opinion piece for The Washington Post this week.
US Treasuries pared earlier losses on Friday after the report. Yields, which fall as prices rise, slipped to 1.15 per cent for the 10-year benchmark note. Before the release, they hovered at 1.165 per cent.
The S&P 500 was 0.5 per cent higher in afternoon New York trading. The dollar index was also 0.5 per cent lower.