Joe Biden is grappling with a messy and unpredictable economic outlook as the twin threats of rising inflation and slow jobs growth shake confidence in the steadiness of the US recovery from the pandemic.
The US labour department this month reported that the pace of job creation slowed significantly in April, fuelling concerns of widespread discrepancies in the labour market.
It followed up that report with figures published last week showing an unexpectedly steep jump last month in its consumer price index, compounding fears of mounting inflationary pressures.
The data have exposed Biden to sharper criticism of his economic management from Republicans and rattled hopes of a smooth rebound from the coronavirus crisis on the back of hefty fiscal stimulus and quick vaccination rollouts.
The US has driven the global economic recovery, with the IMF predicting gross domestic product growth of 6.4 per cent in 2021.
“There are a lot of signs of a resurgence in aggregate demand — an economy that’s recovering, but that recovery is going to be chaotic,” said Wendy Edelberg, director of the Hamilton Project, an economic think-tank at the Brookings Institution. “And yes, really difficult to manage.”
Senior Biden administration officials have cautioned against drawing too many conclusions from one month’s data. They argued that average monthly job creation over the past three months has still been much stronger than in the previous quarter, that the inflation bounce is likely to be transitory and that the recovery remains firmly on track.
But they have also acknowledged high levels of economic uncertainty at a time of big shifts in spending patterns and employment trends, and as health-related restrictions are being lifted across the country more rapidly than predicted — partly because of the pace of the country’s vaccination campaign.
“There’s going to be a period, as supply starts to equal demand and sectors are healing and recovering, [during which] there’s going to be some choppiness,” Cecilia Rouse, chair of the White House Council of Economic Advisers, told reporters on Friday.
“We know that the mismatch between different parts of the economy will show up in unexpected ways until the economy more fully recovers. As the president urged earlier this week, we must be patient,” she added.
Critics of the administration’s economic policies — ranging from former Democratic Treasury secretary Larry Summers to Republicans on Capitol Hill — have seized on the latest data to argue that the Biden administration has recklessly dismissed the risks of excessive fiscal stimulus, and played down the economic warning signs.
“I was on the worried side about inflation and it’s all moved much faster, much sooner than I had predicted. That has to make us nervous going forward,” Summers wrote on Twitter on Friday.
“I think there’s a decent chance that this works out fine. And that we just have a super rapid recovery and a great year,” said Michael Strain, director of economic policy studies at the American Enterprise Institute, a conservative think-tank. “I think there’s also a chance that this could end really poorly.”
Other data releases last week failed to clarify the picture. The University of Michigan’s consumer sentiment index showed rising long-term inflation expectations, while retail sales were flat last month after a big jump in March. On the brighter side, weekly jobless claims out on Thursday dropped to a low point for the pandemic.
At this stage, there were no signs from the White House of any big changes to Biden’s policy agenda to address the emerging economic picture. On the labour market front, the president moved to enforce a requirement that citizens who were offered “suitable” jobs not be eligible for unemployment benefits, and Rouse said the White House was reminding businesses of a tax credit for employee retention set up as part of its stimulus programme.
The White House is sticking by the fiscal support it has enacted with the help of congressional Democrats not only to stoke the country’s recovery but also to help low-income families. It has also pointed to its confidence in the Federal Reserve to manage any rise in inflation.
But Republicans and conservative economists have called for more dramatic action to cool the economy, such as an early end to federal unemployment benefits, which Republican-led states across the country have refused to pay.
Meanwhile, economists whose forecasts were badly wrecked by the data released in recent days warned that any assumptions about the US recovery — let alone policy changes — may well have to be revisited.
“We’re in such an uncharted territory,” said the Hamilton Project’s Edelberg. “When you’re talking about the changes in aggregate demand that we’re experiencing, and changes in supply that we’re experiencing — whatever uncertainty you have about inflation in normal times, increase that by an order of magnitude.”