Rising prices, product shortages and labor market tumult are making for a surprisingly rocky economic recovery, testing the political skills of the Biden White House little more than one year before the midterm congressional elections.
More than 18 months into the pandemic, thorny economic challenges that directly touch voters represent political peril for a president with sagging public approval ratings.
On Wednesday, President Biden moved to address costly traffic jams in the nation’s freight-moving system, convening a virtual industry roundtable and speaking at the White House. He announced that the Port of Los Angeles would “begin operating 24 hours a day, seven days a week” in a bid to clear bottlenecks.
The past week’s government reports showing inflation running at an annual 5.4 percent pace and a labor market in unusual turmoil offered a head-snapping portrait of a $21 trillion economy trying to regain its footing. Even as payroll growth slowed to its lowest monthly total since late last year, Americans empowered by greater leverage quit their jobs at a record pace, according to the Labor Department.
The news offered further evidence that the pandemic has triggered economic aftershocks that policymakers are struggling to understand, let alone quell.
“There’s not an off-the-shelf playbook for this kind of situation. I think they’re figuring it out as they go,” said Jason Furman, who was President Barack Obama’s top White House economist.
The president has few obvious levers to pull that would trigger quick improvement. Supply chain backlogs, for example, involve private-sector shipping lines, terminal operators, trucking companies, railroads and warehouse owners that operate according to market dictates not government commands.
Time may be the administration’s best remedy, if Federal Reserve forecasts are correct. Minutes from the Fed’s September policy meeting released Wednesday show that central bank officials did not expect supply disruptions “to be fully resolved until sometime next year or even later,” based on conversations with businesses and other contacts across the country.
Administration officials insist that the current squalls are temporary and largely a sign of a muscular recovery. The U.S. is expected to grow this year at an annual rate of 6 percent before downshifting to 5.2 percent next year, the International Monetary Fund said earlier this week.
But interrelated price, supply and labor problems that were once expected to fade by Labor Day now appear likely to last well into next year, further complicating the Democrats’ already rocky path to the midterm elections.
Republicans sense a political opportunity.
Sen. Rick Scott (Fla.), a member of the Senate Republican leadership, said Americans are “worried about not being able to afford to put food on the table when surging gas and food prices make budgets even tighter. They’re worried their own government is working against their best interests with overreaching socialist policies that take their choice and opportunity away.”
Employers created a disappointing 194,000 jobs in September, little more than half of the previous month’s total and well below economists’ expectations. Cecilia Rouse, chair of the Council of Economic Advisers, blamed the resurgent coronavirus, which depressed services spending and discouraged some people from returning to the workplace.
Rouse played down the significance of a single month’s hiring. But she warned that even the recent three-month average of 550,000 jobs was likely to decline because it was distorted by unusually strong results in July.
America’s unemployed are sending a message: They’ll go back to work when they feel safe – and well-compensated
Still, the 4.8 percent unemployment rate is the lowest of the pandemic. And the record number of Americans quitting their jobs last month is a sign of ample opportunities for those who are able to work.
“The U.S. economy faces some high-class problems,” said Furman, now an economics professor at Harvard University. “Quits are not a concern at all. That’s a choice people are making.”
The record number of people quitting their jobs, combined with survey data, suggests wages will increase at an annual rate of 4 percent to 4.5 percent, said Michael Pearce, senior U.S. economist for Capital Economics.
But the tighter labor market — a significant problem for small businesses — threatens to keep inflation above the Fed’s long-run 2 percent target and become “a lasting drag on economic activity,” according to Pearce.
“The longer shortages continue to worsen and growth of the labor force remains sluggish, the more likely it is that the decline reflects more structural factors, such as an increased pace of retirements,” he wrote in a client note.
Data released Wednesday by the Bureau of Labor Statistics showed that prices rose 0.4 percent in September compared with August, slightly higher than the previous month-to-month change. Consumers continue to experience higher prices across a broad range of sectors compared with last year, including for used cars, gas, meats, appliances, shoes and rent.
Speaking on an earnings call Wednesday, Jamie Dimon, chief executive of JPMorgan Chase, described supply strains and price increases as the side effects of strong growth. “I doubt we’ll be talking about supply chain stuff in a year,” he told analysts.
Still, economic data from September underscored how vulnerable the economic recovery remains to the pandemic — and how policymakers underestimated the threat posed by the delta variant when the surge began a few months ago.
On the inflation side, Fed leaders have long said that price increases are a “transitory,” or temporary, feature of an economy battered by the pandemic. Their message is that as supply chains clear up, inflation will settle closer to the 2 percent annual target, sometime next year.
Yet that timeline has been complicated by the delta variant and the uncertainty it brings for global supply chains. Figures from August broke an eight-month streak of rising or steady inflation and was a welcome sign for policymakers at the Fed and the White House. But September’s top-line inflation figure reversed course, coming in slightly higher than August’s and highlighting why policymakers are so hesitant to make broad takeaways from one month of data — good or bad.
Fed policymakers tempered their expectations for the unemployment rate at their September meeting, and they lowered estimates for the economy’s overall growth. And on the inflation front, some Fed leaders showed concern that such high inflation rates “could feed through into longer-term inflation expectations of households and businesses,” according to meeting minutes released Wednesday.
“It is becoming increasingly evident that inflation is well entrenched, that inflation expectations are likely to increase, and that there is going to be nothing naturally self-correcting back to 2 percent about the current inflation process,” said former treasury secretary Lawrence H. Summers, a Democrat who has been critical of Biden’s economic agenda. “For every transitory factor that might recede, there is a factor like housing or wages where inflation is likely to be high for a long time to come.”
Inflation won’t be brought under control until supply chains begin working smoothly again. In a recent speech, Fed governor Lael Brainard cited builders who can’t get enough construction materials and North American auto production, which was paused by shutdowns in Malaysia and Vietnam.
Policymakers often argue that price increases are limited to pandemic-battered industries, like airlines, hotels and used cars. But federal data on Wednesday pointed to food and shelter costs rising in September — together contributing to more than half of the monthly increase of all items, when seasonally adjusted. Concerns about rising rent and soaring home prices have become a litmus test for whether price increases will stick even once the pandemic is over.
The Fed’s prediction that inflation is temporary has left the American public asking how much longer it will take for gas or grocery prices to simmer down. On Tuesday, Atlanta Fed President Raphael Bostic said the word “transitory” had become a “swear word” to his staff. That’s in part because the public is more impatient to see an end to inflation than are economists.