This week in Bidenomics: Bragathon
The long-awaited 2023 recession keeps not happening.
Economists expected to see signs of a slowdown in the jobs report for January. Instead, hiring surged, with employers creating 517,000 new jobs, the most since last July. The unemployment rate fell to 3.4%, the lowest since 1969.
President Trump used to boast about strong job numbers that reflected the “greatest economy ever.” That was hyperbole. Biden has a stronger claim to superlatives. The economy has created 12.1 million new jobs since he took office, the most of any president on record. Job creation during the same span of Trump’s presidency totaled a mere 4.5 million. The unemployment rate has been lower than the current 3.4%, but not since the post-World War II boom of the 1950s.
Biden’s not shy about grabbing credit for an upbeat economy, whether he deserves it or not. On February 3, he called the January job numbers “strikingly good news” and declared, “The Biden economic plan is working.” It’s debatable whether Biden’s policies are triggering this remarkable job growth, but what is true is that the economy is working for Biden, for now, anyway.
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In addition to the seemingly bulletproof job market, inflation is starting to break Biden’s way, as well. The Federal Reserve is winding down its aggressive monetary tightening cycle, with a modest quarter-point interest rate hike on February 1 that markets cheered. The Fed raised rates by a hefty 4.5 percentage points in 2022, but it is likely to push rates up by only another half-point or so in 2023. Stocks jumped on February 1 when Fed Chief Jerome Powell acknowledged that inflation was easing.
The inflation rate has dropped from a high of 9% last June to 6.5%. That’s still too high, given that the Fed would like to see it at around 2%. But the downward trend is encouraging and various signals from spending data and wholesale markets suggest inflation will continue to drop. By the middle of the year it could be less than 5%.
The biggest concern with the Fed’s aggressive rate-hiking strategy has been excessive tightening that could cause a recession. That would show up clearly in the labor market, through job losses and a rise in the unemployment rate. The January numbers show that is clearly not happening.
There’s further good news in the jobs data. Wage growth slowed from December to January, which isn’t great for workers—but it’s an important signal for the Fed. One cause of inflation can be a so-called “wage price spiral” in which workers demand pay hikes to compensate for higher inflation, and companies raising pay have to raise prices to account for higher production costs. A year ago, that seemed like a pernicious problem looming. No more. “A wage-price spiral is losing its luster among the panoply of risks facing the U.S. economy this year,” Moody’s Analytics reported on February 3.
Economists acknowledge their ongoing difficulty forecasting this peculiar post-pandemic economy, but many are sticking with their recession calls. “The labor market is hot, but not that hot,” Oxford Economics argued in a February 3 analysis. “We still look for employment growth to slow as the economy enters a recession in response to the Fed's cumulative rate hikes. We expect outright job losses in the second half of the year and look for the unemployment rate to rise by about 1 percentage point.”
Consumers may have similar reservations. Confidence levels dipped in January, and the buoyant labor market isn’t helping Biden’s approval ratings, which have been mired in the low 40s for over a year. If the coming recession ever happens, maybe voters will perk up once it’s over and everybody stops talking about it.
Rick Newman is a senior columnist for Yahoo Finance. Follow him on Twitter at @rickjnewman
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