WASHINGTON >>President Joe Biden assured Americans today that the U.S. economy is chugging along in the holiday season, but the very strength of a new jobs report showed that high inflation remains a recession threat.
At the White House, the president signed an emergency bill to avert a rail strike that he said could have caused 765,000 job losses in two weeks and plunged the country into a painful downturn. But many voters and economists still fear that a recession is nigh and the price of reducing high prices will be layoffs.
Biden pointed to the addition of 263,000 jobs in November — with the unemployment rate holding steady at 3.7% — as proof that his policies have bulked up the economy. He suggested that the major recession risk was the freight rail strike, a problem the country avoided by having Congress impose an agreement that raises pay but fails to provide the additional paid sick leave that workers demanded.
“Things are moving — they’re moving in the right direction,” Biden said. “As we go into the holiday season, here’s what this all means: The Americans are working, the economy is growing.”
White House officials do see reason for optimism. Gasoline prices are averaging $3.45 a gallon, down sharply from a June peak, according to AAA. The economy is expanding after shrinking in size during the first half of the year. And since July, workers’ average hourly earnings have been rising faster than consumer prices.
But inflation can be a game of whack-a-mole, and today’s employment report suggested that wage growth actually could be part of the problem.
Inflation has been something of a moving target during Biden’s presidency. Supply chain challenges and shortages pushed up prices as the country started to recover from the pandemic in 2021. Higher oil and food costs drove up inflation after Russia invaded Ukraine in February. And the jobs report showed that wage growth accelerated sharply, which could fuel inflation going forward.
The Federal Reserve is attempting to reduce inflation by raising its benchmark interest rates. That action reduces economic activity in order to bring down prices.
On Wednesday, Fed Chair Jerome Powell suggested the U.S. central bank might not have to raise rates as aggressively to return inflation to the 2% annual target. That comment caused the stock market to rise, only for the optimism to fizzle out today as the new and revised wage data indicated the Fed might need to do more to cool the economy.
“With these revisions, the pace of wage growth is more consistent with 5% inflation than with 2% inflation,” said Harvard University professor Jason Furman, formerly the top economist in the Obama White House. “In this sense it may take a larger adjustment in labor markets than previously hoped to bring inflation down.”
The president’s key message is that his policies have helped to avoid catastrophes such as a recession caused by a rail strike. The bill he signed today binds rail companies and workers to a proposed settlement that was reached between the railroads and union leaders in September but rejected by the workers of some unions.
“The bill I’m about to sign ends a difficult rail dispute and helps our nation avoid what without a doubt would have been an economic catastrophe at a very bad time in the calendar,” said Biden. He said his team helped negotiate a “good product, but we still have more work to do in my view.”
Members of four of the 12 unions involved had rejected the proposed contract as lacking sufficient paid sick leave, setting up the possibility of a strike beginning Dec. 9. Biden acknowledged the shortcoming and said he would continue to push for that benefit for every U.S. worker.
“I’ve supported paid sick leave for a long time,” said the president, a staunch labor union supporter. “I’m going to continue that fight until we succeed.”
He said that Republican lawmakers blocked the inclusion of seven days of paid sick leave in the agreement, and it’s unclear how he would get backing for expanding family leave to all workers with the GOP winning the House majority in November’s elections.
Republican leaders have tapped into deep doubts about the U.S. economy with party officials noting that higher prices have caused Americans’ savings rate to hit the lowest level in 17 years. About three-quarters of voters last month called economic conditions “poor” or “not so good,” according to AP VoteCast.
Texas Rep. Kevin Brady, the ranking Republican on the House Ways and Means Committee, called the jobs report a “nightmare before Christmas.”
“The White House is absolutely clueless about the very real labor shortage still hurting Main Street businesses and driving prices higher,” Brady said. “And for many workers, they are struggling with real wage losses and real pay cuts, making sticker shock a big part of this year’s holiday gift shopping experience.”
Although Biden has said the economy is heading in the right direction, the employment report indicates that it’s on a “more muddled path” in which it’s unclear whether a downturn and eventual job losses can be averted, said Daniel Zhao, lead economist at Glassdoor, an employment website.
The mixed signals come in part because the employment report comes from two surveys. The survey of employer payrolls shows how many jobs were added, while a separate survey of households determines the unemployment rate.
The two surveys have diverged with the household numbers indicating the economy has actually lost jobs over the past two months, contradicting the gains seen in the establishments survey.
Zhao said the economy doesn’t look as though it is about to tip into recession, but the risk is that when job figures are revised next year policymakers could learn in hindsight that the U.S. was shedding jobs as the Fed continued to raise rates.
“These surveys are out of sync at a critical turning point in the economy,” he said.