One can argue that the currently unfolding government-engineered economic boom is just as unreal as the downturn that we witnessed in the spring of 2020.
The U.S. economy obviously won’t see the creation of 20 million jobs in two months to mirror last year’s staggering lockdown job losses. But it could easily exhibit several months of gains exceeding one million new jobs a month as the nation reopens.
If the recovery maintains its strength, it is likely to cause many to question the necessity of President Biden’s recently enacted stimulus and proposed omnibus infrastructure plans.
Only the orchestrated 1981-1982 recession, when Fed chair Paul Volcker raised interest rates rapidly to double-digit levels to expunge inflation, bears any similarity to the 2020 recession. Then-President Reagan countered the ferocious monetary discipline with aggressive tax cuts and government spending.
Conditions then were very different. By early 1983, unemployment stood at 11.0%. Last month, the jobless rate reached 6.0%.
Phil Orlando, chief equity market strategist at Federated Hermes, was bullish on the economy even before Good Friday, when the Department of Labor reported 916,000 new jobs created in March. Federated’s own “conservative” forecast called for a gain of 610,000 jobs.
The turnaround in the labor market can largely be credited to “the rapidly accelerating pace of vaccine distribution” that began in December, Orlando notes. But conditions remain fragile. December saw the loss of 306,000 jobs.
If the unemployment rate keeps falling at a 0.2% or 0.3% pace for the next five months, it could stand in the 5.0% area by September. The Biden administration has conceded that it expects long, drawn-out negotiations over the infrastructure package.
Orlando thinks that Biden believes that former President Obama's stimulus program was too small coming out of the financial crisis and is reasoning that, if he is going to make a mistake, it will be spending too much, not too little. It also is notable that the current administration intentionally is avoiding phrases like "shovel-ready" as it portrays its programs as a series of decade-long projects.
Several Republicans have indicated they are open to spending as much as $600 billion in infrastructure. However, they have voiced no interest in the rest of the $2.25 trillion proposal, including a series of major tax increases on corporations and wealthy individuals, as well as far-reaching social programs progressives have labelled the softer side of infrastructure.
Surveys indicate most Americans are broadly supportive of upgrading dilapidated roads, bridges and other transportation facilities. But if the reopening continues to proceed smoothly, and if GDP is growing at a 6% clip by the third quarter, the need for a sweeping agenda to expand the nation’s social contract, which many Democrats envision, could well start to look less compelling.
That could force President Biden to decouple the infrastructure plans from the rest of the massive proposal if he wants to accomplish anything. Details of the complete program have yet to be spelled out.
There has been a lot of lofty talk about green jobs. However, it's unclear whether the proposal will address the challenges posed by automation and exponential technologies that will dramatically influence the trajectory of the labor market over the next decade.
And if the boom many business leaders and economists are expecting materializes, the long-term structural problems could get lost as citizens enjoy some kind of return to normalcy.