The latest coronavirus wave slammed the U.S. economy in December, wiping out 140,000 jobs, raising pressure to accelerate vaccinations and blowing the door open for President-elect Joe Biden and a narrowly Democratic Congress to push for even more stimulus spending within weeks.
The December employment report, the last to be released during President Donald Trump’s administration, leaves the nation around 11 million short of the level of jobs from before Covid-19 crushed the economy and wiped out around 23 million jobs. Trump’s record will now include a recovered stock market but an enormous net loss of jobs.
Most of the losses in December, nearly 500,000, came in the leisure and hospitality industries as fresh lockdowns and lower travel led to widespread layoffs. The expiration of some of the first big stimulus package, passed back in March, also left consumers with less money to spend, hitting demand in the economy.
The December tumble, which left the jobless rate at 6.7 percent, suggests the distribution and adoption of coronavirus vaccines must increase rapidly in order to avoid much worse damage and allow for potential recovery in the spring and summer.
And it will give Biden and the Democrats wider leeway to force through trillions of dollars more in stimulus spending — by whatever legislative means available — including significant help for state and local governments. It also means the Democrats will likely be able to approve enough direct cash to reach the “$2,000 check” level they’ve long supported, when including the $600 checks approved by Congress and signed by Trump last month.
“The economy went into reverse in December and we are still 11.5 million jobs short of where we were and the biggest problem was the virus and the expiration of stimulus,” said Harvard professor Jason Furman, who served as chair of the Council of Economic Advisers under President Barack Obama. “Much more action is needed to control the virus and support the economy. And I think that will be enough to generate large improvements over the course of 2021.”
The December jobs report cements a strange legacy for Trump. The nation will have millions of jobs fewer than when he took office, partly due to a slow and halting federal response to the coronavirus. But the stock market has regained all its losses from the spring and now is hitting records once again as many companies that thrived during lockdowns soar and investors bet on a stronger 2021.
The bifurcation has led to a stark “K-shaped” recovery in which the top level of workers have largely if not completely recovered while tens of millions of Americans in lower-paying service industry jobs suffer. Economic inequality, already bad before the virus hit, is now at levels not seen since the 1920s before the Great Depression. Reversing that trend is among Biden’s top priorities. And he now has more weapons at his disposal with the narrowest of Senate majorities following Democrats‘ two special election wins in Georgia.
Biden will have full control of Washington — though not a filibuster-proof majority in the Senate — during the first two years of his term. And his economic advisers plan a heavy focus on spending to boost vaccination distribution, support strapped state and local governments, improve American infrastructure, further expand jobless benefits and pump more direct cash into individual households.
Economists and Wall Street analysts say some of the recent market ebullience is based on the assumption that Biden will be able to deliver on much of this even if Democrats decide against blowing up the legislative filibuster, which requires 60 votes in the Senate to overcome.
But they will have multiple opportunities to use the “budget reconciliation”vehicle to pass significant spending increases with a one-vote margin in the Senate. There is also the chance that more Republicans in the Senate will come around to the need for bigger stimulus spending given the wave of new coronavirus cases and the slow nature of the vaccine rollout.
“With the elections in Georgia giving control to the Democrats, we should expect to get a fairly large and targeted fiscal aid package in the first quarter of the year which investors clearly have seized on,” said Joseph Brusuelas, chief economist at consulting firm RLM. “We are going to get a targeted fiscal aid package quickly then another stimulus package and then infrastructure. And these are all huge things.”
The state and local aid will be especially important as states are already struggling to pay billions in extended benefits approved by Congress last month, leading to several weeks of delays in payments in places like California, Michigan, Florida and Washington. Losses in state and local government jobs forced by lower Covid-era tax receipts and the need to balance budgets is also driving down the national jobs numbers.
Failing to approve larger stimulus spending could push the economy into either a double-dip recession or a repeat of the slow, halting and unequal recovery that followed the financial crisis of 2008. The Biden team, many of whom worked in government during the Obama years, is determined to learn the lessons of the last major slowdown.
Still, even with major stimulus spending, the recovery will depend in large part on effective and widespread adoption of vaccines. And even then, it may take years to return to economic conditions before the virus hit. “I’m worried some of the scarring is extensive enough that we will be far from fully recovered at the end of 2021,” said Furman. “Today’s number expands what was already an open window for more support for the economy, but we will not be back in perfect condition until 2022 or 2023. It’s going to take a while in some places.”
Job losses in December, which ended seven months of gains following the enormous virus-induced declines, largely came in the service industry where restaurants and bars slashed 372,000 positions as cold weather and new lockdowns limited demand. Overall, employment in leisure and hospitality — which includes hotels, tourist sites and other categories, declined by 498,000. Gains in professional and business services, retail and other areas were not enough to offset the giant losses elsewhere. Government jobs declined by 45,000 amid growing budget crunches around the nation.
There are now around 11 million unemployed and the jobless rate remained at 6.7 percent, well below its Covid-ear peak of over 14 percent but still double what it was before Covid hit. And there are still nearly 20 million Americans on some form of jobless assistance.
But Wall Street traders and many economists remain hopeful that the slide in jobs will reverse fairly early next year given prospects for vaccines and more fiscal aid. Should either of those things fail, however, the numbers could get significantly worse.
“While we remain very upbeat on the US’ medium- to long-term prospects, we have to be braced for more bad economic data that could last well into the second half of 2021,” James Knightley, chief international economist at financial firm ING, wrote in a note to clients on Friday.
This blog originally appeared at Politico on January 8, 2021. Reprinted with permission.
About the Author: Ben White is POLITICO Pro’s chief economic correspondent and author of the “Morning Money” column covering the nexus of finance and public policy.
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