President Joe Biden portrayed the May jobs report as a jumping off point for more spending on infrastructure and education to keep growth going — essentially an argument for his agenda. But the employment numbers issued Friday also hinted at the possible limits of how much government aid can be pumped into the world's largest economy.
“We’re on the right track,” Biden said. “Our plan is working. And we’re not going to let up now. We’re going to continue to move on. I’m extremely optimistic.”
The May jobs report showed the complexity of restarting the economy after a pandemic shutdown and the mixed signals that can result when an unprecedented surge of government spending flows through the economy. Biden can congratulate his administration on 559,000 jobs being added and a 5.8% unemployment rate, yet the hiring was lower than what many economists expected after his $1.9 trillion relief package.
Biden's challenge is to convince Americans that his administration's relief efforts to date have done well enough to sustain faster growth, instead of creating inflation and imbalances that could jeopardize public support for his plans to invest at least another $3 trillion in roads, clean energy, children and schools.
The report suggested that not enough people are seeking work, a possible problem for a president who is hoping that his rescue package will put the country back at full employment by 2022. While Biden viewed the jobs figures as a full-speed-ahead argument for his agenda, several economists were urging a degree of caution to see whether more Americans will start looking for jobs after the steep losses caused by the coronavirus pandemic.
Republicans, for their part, found ways to turn the jobs report into an argument against Biden's plans to finance more government programs through tax increases on the wealthy and corporations. Their concern is that generous unemployment benefits have prevented people from accepting jobs and that the government aid — much of it still forthcoming — will fuel inflation.
Texas Rep. Kevin Brady, the top Republican on the House Ways & Means Committee, said Biden should divert more of the COVID-19 relief money to infrastructure.
“If we want to help families build their lives and rebuild the U.S. economy for the long term, it’s time for the emergency spending and the endless government checks to end," Brady told Fox Business.
The big red flag in the jobs report was that the labor force participation rate ticked down to 61.6%. Despite the government spending, it's essentially unchanged from where it was last summer and down from 63.3% before the coronavirus struck 14 months ago. The lower participation rate means that a healing economy is not encouraging enough people to find work.
For some economists, it's evidence that Biden's $1.9 trillion relief package was likely excessive. The government spending has so far generated more demand for workers and goods than the economy could produce, possibly vindicating some Republican criticisms.
“We have a general sense of what’s going on at this point: We are not able to create the jobs fast enough relative to the demand we’re infusing into the economy,” said Marc Goldwein, senior vice president for the Committee for a Responsible Federal Budget.
Goldwein and other economists said they believe that Biden's aid package helped the economy, though the same results might have been achieved for less money. There is also the possibility that the relief package's expanded unemployment benefits propped up consumer spending and that forthcoming state and local government aid kept workers on payrolls — all of which could have helped boost the jobs totals.
Harvard University professor Jason Furman, a former chief economist in the Obama White House, said it was surprising that the participation rate fell in a month when vaccinations were advancing, COVID-19 infections were declining, job openings were up and wages were rising.
Because demand for workers is greater than their current supply, the silver lining for Biden is a sharp jump in average hourly earnings. That's a clear benefit to working Americans that can be sold on the campaign trail, but the risk of wages rising too quickly is levels of inflation that could choke off growth.
Furman urged patience in a recent paper, arguing that the demand for workers will most plausibly lead to an increased supply of people seeking jobs.
“In the interim there would be more price inflation, but over time it would be offset by an economy that returns to something that could even be better than its pre-pandemic path," he wrote in a paper with Wilson Powell III for the Peterson Institute for International Economics.
Biden acknowledged the difficulty of reviving the economy after the shutdowns tied to the pandemic, noting that it was not as simple as flicking a light switch. One of the major problems is supply bottlenecks for computer chips, used cars and an array of raw materials that can cause higher prices. Those supply bottlenecks in the short term are raising prices and could make it costlier to fund infrastructure projects.
Brian Deese, director of the White House National Economic Council, said the administration plans to release next week a review of how to make supply chains more resilient. But some of the current mismatches are short term and will need to be resolved through market forces.
“On a lot of these issues," Deese said, "there is no immediate short-term, magic bullet fix.”
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