The right stuff Rob Gavin
Stimulus spending and near-zero interest rates fueled a robust recovery and remarkably strong labor market
TTRENDLINES
he US labor market keeps charging ahead. More people than ever are working. Unemployment is near half-century lows. Wages are rising. Which brings up a question: Were massive stimulus spending and near-zero interest rates the right policies after all as the nation emerged from the pandemic? The news: The Labor Department reported on Friday that the economy created another 216,000 jobs in December, bringing total job gains for 2023 to 2.7 million (on top of 4.8 million in 2022).
The unemployment rate ended the year at 3.7 percent, three ticks above the 55-year-low of 3.4 percent last January. Wages rose 4.1 percent from a year earlier, outpacing recent inflation readings of about 3 percent.
Risk-reward: The $1.9 trillion American Rescue Plan Act approved by Congress in 2021 and rock-bottom interest rates maintained by the Federal Reserve supercharged the recovery and job market. But, as economists such as Harvard’s Larry Summers warned, those policies also contributed to a burst of inflation. So, was it all worth it?
The answer appears to be yes. Prices are higher but the stimulus-stoked recovery not only quickly repaired the labor market, but also spread the benefits across American society.
Let’s compare it to the recovery from the Great Recession, which stretched from 2007 to 2009 and hindered the economy for years to follow. Congress passed a stimulus package of about $800 billion in 2009, but little additional support followed.
The pandemic zapped more than twice as many jobs as the Great Recession, but they came back in half the time. It took just over two years to recover the 21.9 million jobs lost in early 2020, but more than four years to regain the nearly 9 million jobs shed during the Great Recession.
The unemployment rate, which spiked to almost 15 percent in April 2020, fell back to the prepandemic low of 3.5 percent in about 2 years. After the Great Recession,
it took more than seven years for unemployment to return from its 10 percent peak to the pre-recession low of 4.4 percent.
Perhaps more important, the benefits of the rapid recovery were broadly shared. Unemployment among Black workers soared to nearly 18 percent during the pandemic, but ended 2023 at 5.2 percent. Latino unemployment was 5 percent in December after hitting 18.9 percent in 2020.
“This very strong job market economy has really lifted everyone, pretty much across all demographics,” said Mark Zandi, chief economist at Moody’s Analytics. “The script is still being written, but from what we’ve seen, the policy response has been a success.”
The ‘better off’ test: Since we’re in an election year, the question inevitably comes to, “Are you better off now than four years ago?” For a lot of people, the answer may be yes.
In 2023, the US economy created an average of 225,000 jobs a month, compared to 163,000 in 2019, according to the Labor Department. What makes this comparison more striking is last year’s gains came against the backdrop of rising interest rates — four increases by the Fed in 2023 after seven in 2022. The Fed cut rates three times in
2019.
The unemployment rate at the end of 2023 was slightly higher than the 3.6 percent in 2019, and the labor force participation rate, 62.5 percent, was lower than the 63.3 percent in December 2019.
But millions more Americans are working. Some 1.2 million more Black people were employed at the end of 2023 compared to 2019 and some 2.2 million more Latinos, according to the Labor Department. There are 2.4 million more women on payrolls, and 185,000 more manufacturing jobs.
Average wages are up about 20 percent from 2019, according to the Labor Department, although rising prices for consumer goods — up 19 percent — have eaten most of those gains. At the end of 2019, wages were up about 12 percent from four years earlier, outpacing consumer price increases of about 8 percent.
But inflation is moderating — down to about 3 percent annual growth from a 2022 peak above 9 percent — and the balance of power in the workplace has shifted. Workers are gaining higher wages, favorable union contracts, and better working conditions, such as flexible schedules.
Bottom line: It may be too early to declare that we’ve dodged the recession bullet, and we have yet to reckon with the massive costs of the stimulus. But here’s what’s certain: It’s not the 1970s and it’s not the ’30s, despite the pronouncements of doomsayer analysts and TikTok economists.
At the end of 1979, as Jimmy Carter campaigned for a second term, the unemployment rate was 6 percent and inflation topped 13 percent. In 1935, as FDR readied his bid for a second term, unemployment was 20 percent.
A lot of people are longing for the good old days. But there’s a good chance we’re living in them right now.