Biden: Job market will shield economy
WASHINGTON – The U.S. economy faces plenty of threats: war in Ukraine, high grocery bills, spiking gasoline prices, splintered supply chains, the lingering pandemic and rising interest rates that slow growth.
The Biden White House is betting the U.S. economy is strong enough to withstand these threats, but fears of a coming economic slump are growing among voters and some Wall Street analysts.
The next few months will test whether President Joe Biden built a durable recovery full of jobs with last year’s $1.9 trillion relief package, or an economy overfed by government aid that could tip into a downturn.
Brian Deese, director of the White House National Economic Council, told reporters this week the 3.6% unemployment rate and last year’s robust growth puts the U.S. in a safe place compared to the rest of the world.
“What we have done over the course of the last 15 months is driven a uniquely strong economic recovery in the United States, which positions us uniquely well to deal with the challenges ahead,” Deese said.
But others see an economy that could struggle to preserve growth while reducing inflation now running at a 40year high of 7.9%. The Federal Reserve has signaled a series of benchmark interest rate increases and other policies to slow inflation this year, yet Russia’s invasion of Ukraine has destabilized the global energy and food markets in ways that could push prices upward.
Deutsche Bank on Tuesday became the first major financial institution to forecast a U.S. recession. And Harvard University economist Larry Summers – a Democrat and former treasury secretary – noted the U.S. economy has gone into recession within two years each time inflation eclipsed 4% and unemployment was below 5% as they are now.
Joe Lavorgna, who worked in the Trump White House and is now chief economist for the Americas at Natixis, said he expects economic growth this year to be just below 1%, a potentially dangerous level.
While household balance sheets are solid and unemployment low, wages are not keeping up with inflation, which could dampen consumer spending. And supply chain disruptions and higher energy costs will be additional drags.
Still, because of the strong labor market and household savings, Lavorgna also anticipates that any downturn would be mild.
Nearly 7 in 10 Americans believe the economy is in poor shape, according to a poll last month by The Associated PRESS-NORC Center for Public Affairs Research. Yet Bank of America noted that total debit and credit card spending in March was up 11% from a year ago, and its analysts concluded households are “strong enough to weather the storm provided it doesn’t persist too long.”
The White House has watched with some frustration as the public conversation about the economy has been reduced to inflation, believing that largely ignores the strength of the labor market and the idea that families are able to manage the higher prices because of the coronavirus relief provided earlier.