WASHINGTON: High unemployment. Rising prices. Petrol lines.
They’re a bad memory for Americans old enough to remember the 1970s – but they’re also likely causing a few sleepless nights in the White House, as the US economic recovery from the unprecedented coronavirus recession hits some bumps.
The jolts are dampening consumer confidence, ramping up inflation fears, and helping Republicans build their case against President Joe Biden and his ambitious plans to revamp the US economy with trillions in new spending.
As the 1970s show, high joblessness and rising prices the US saw in April can be a potent political force.
Republicans crafted a “misery index” out of the two factors to attack then-president Jimmy Carter. After hitting 75 per cent approval ratings early in his presidency, the Democrat was trounced in a 1980 landslide.
Support for Biden remains strong and US equity markets remain near record highs.
The White House says there’s bound to be surprises as the US emerges from an unprecedented pandemic.
“We must keep in mind that an economy will not heal instantaneously,” Cecilia Rouse, the chair of the White House Council of Economic Advisers said. “It takes several weeks for people to get full immunity from vaccinations, and even more time for those left jobless from the pandemic to find and start a suitable job.”
Rouse said a mismatch between supply and demand due to the pandemic and the economic snap-back had pushed inflation higher but that the mismatch should prove temporary.
“I fully expect that will work itself out in the coming months,” she said.
The Federal Reserve also is betting heavily inflation will cool on its own, even as hiring picks up steam over the summer, Americans start to travel again, and the Fed keeps its massive crisis levels of support intact
The White House wouldn’t offer a timeline for when the economy will smooth out. But it doesn’t expect a repeat of April’s weak jobs report, and recent data show applicants for unemployment benefits fell to a 14-month low.
Still, there’s more turmoil in months to come.
Republicans, divided by former President Donald Trump’s false claims that the 2020 election was stolen from him, have seized the moment to knock the foundation of Biden’s economic plans – raising taxes on the wealthy and companies.
The US Chamber of Commerce, the powerful corporate lobby group, is pushing for repeal of special unemployment payments that were a cornerstone of Biden’s campaign, and over a dozen state governors have decided to roll them back early.
With 7.5 million more people either unemployed or out of the job market altogether compared to before the pandemic, even a month or two more of weaker-than-expected job growth and rising prices would up the pressure on Biden and the Fed.
Some early data suggest that May’s jobs report could be weak as well.
The Biden administration, workers, labour advocates and some economists have argued firms should raise wages if they’re having trouble hiring, and some, including McDonald’s have followed suit.
Federal Reserve officials concede things could be tricky.
“The question of how to unclog the labour market is going to be a critical one,” and could limit overall economic growth this year if it takes too long, said Richmond Federal Reserve president Thomas Barkin.
While “unsticking” the labour market is one challenge, stamping out price flare-ups as Americans return to schools and offices and go on vacation once again is another.
Consumer sentiment in early May tumbled as people worried about rising prices. Inflation expectations for the year ahead and over the next five years rose to their highest in more than a decade.
“You have a logistical challenge of shutting down an economy and bringing it back up and we are not built for that,” Barkin said.
The Colonial Pipeline shutdown that led to petrol lines in some southern states had nothing to do with the pandemic, and was lifted on Wednesday. But it could take “some time” before it returns to normal, Biden said on Thursday.
A semiconductor shortage that started before Biden took office continues to drive up car prices, as pandemic-shy Americans look for alternatives to public transportation.
Home builders point to surging lumber prices they say threaten the critical housing market and the broader economy. Prices for materials used in construction jumped 19.7pc from April 2020 to last month, the largest increase in the 35-year history of the series, according to Ken Simonson, the chief economist for the Associated General Contractors of America.
Carter and his predecessor Republican Gerald Ford found inflation impossible to beat, but faced more endemic problems in the 1970s.
Biden faces a very different problem – a job market in the wake of a deadly pandemic that has left workers constrained, nervous, or living off savings and unemployment benefits for now. But that doesn’t mean his job is any easier.
