Biden inherits damaged economy; hope is emerging
WASHINGTON – President Joe Biden has inherited a badly damaged economy pulverized by the pandemic, with 10 million fewer jobs than a year ago and as many as one in 6 small businesses shut down.
Yet there are also signs of resilience and recovery that suggest the prospect of a rebound, perhaps a robust one, by the second half of his first year in office. Despite the bleakness of the economic landscape, Biden by most accounts faces a less daunting challenge than he confronted as vice president under Barack Obama more than a decade ago in the depths of the Great Recession.
The hardships inflicted by the pandemic recession have been deep but concentrated in a few extremely hardhit sectors and harshly unequal. Much of the economy, particularly housing and manufacturing, has held up surprisingly well compared with previous recessions. People fortunate enough to keep their jobs – disproportionately affluent Americans – have bulked up their savings. They could be poised to unleash a spending boom later this year once vaccines have been more broadly distributed.
There are also signs that the job market, for all its deep losses, is enduring less permanent harm than it has in the past and might be set up for a fast hiring recovery.
Still, for now, many signs are dreary: Consumers have retrenched, and months of job gains have turned to losses. New applications for unemployment benefits remain shockingly high 10 months since layoffs first spiked last March. And the human toll of the pandemic recession, from depressingly long food-bank lines to apartment evictions, has yet to show much improvement.
All of which helps explains why Biden saw the need last week to propose another mammoth federal rescue aid package – a $1.9 trillion plan to end what he called “a crisis of deep human suffering.”
Here is a closer look at the economy the 46th president is confronting:
Jobs: More losses, less scarring
The nation has regained more than half the 22 million jobs that were lost to the pandemic in March and April. But hiring has weakened for six straight months. In December, it actually turned negative, with the loss of 140,000 jobs.
Employers may still be cutting jobs because viral cases remain rampant, cold weather is restricting outdoor dining and other activities and consumers are avoiding in-person services, from hotels to airports to retail shops. With the unemployment rate at an elevated 6.7%, a shortage of hiring is prolonging the pain for people out of work.
A major concern for economists is what they call “scarring” in the job market – long-term and permanent job losses that detach people from the job market and diminish their skills and professional connections. This trend tends to make it harder to reabsorb the unemployed into the economy once it recovers.
Here the evidence is mixed: The number of unemployed who say their job losses are permanent – and therefore unlikely to return even when the economy rebounds – has jumped to 3.4 million, more than double the pre-pandemic level. But it appears to be levelling off: The number fell in December and is little changed from August.
And the ranks of those unemployed for 15 weeks or longer has tumbled from more than 8 million in August to 5.5 million last month.
Consumers pulling back, for now
The raging pandemic took a fresh toll on the economy over the holiday shopping season, with sales at retail stores falling for three months in a row. Sales at restaurants and bars tumbled 4.5% in December and collapsed by one-fifth for 2020 as a whole.
There are early signs, though, that the $600 checks for most Americans that were authorized in last month’s rescue aid package are beginning to boost spending. Economists at Bank of America said that spending on their debit and credit cards jumped 9.7% for the week that ended Jan. 9 compared with a year earlier.
Housing sizzles for some
Many Americans who have kept their jobs have capitalized on the new workfrom-home culture, becoming first-time homebuyers or moving into larger digs. Builders broke ground in December on the most new homes since 2006. Home sales are running about 25% above year-ago levels. Four-fifths of construction jobs lost in the pandemic have returned, a much faster rebound than employment overall.