WASHINGTON – President Joe Biden has inherited a badly damaged economy pulverized by the pandemic, with 10 million fewer jobs than a year ago and as many as one in 6 small businesses shut down.
Yet there are also signs of resilience and recovery that suggest the prospect of a rebound, perhaps a robust one, by the second half of his first year in office. Despite the bleakness of the economic landscape, Biden by most accounts faces a less daunting challenge than he confronted as vice president under Barack Obama more than a decade ago in the depths of the Great Recession.
The hardships inflicted by the pandemic recession have been deep but concentrated in a few extremely hard-hit sectors and harshly unequal. Much of the economy, particularly housing and manufacturing, has held up surprisingly well compared with previous recessions. People fortunate enough to keep their jobs — disproportionately affluent Americans — have bulked up their savings. They could be poised to unleash a spending boom later this year once vaccines have been more broadly distributed.
There are also signs that the job market, for all its deep losses, is enduring less permanent harm than it has in the past and might be set up for a fast hiring recovery.
Still, for now, many signs are dreary: Consumers have retrenched, and months of job gains have turned to losses. New applications for unemployment benefits remain shockingly high 10 months since layoffs first spiked last March. And the human toll of the pandemic recession, from depressingly long food-bank lines to apartment evictions, has yet to show much improvement.
All of which helps explains why Biden saw the need last week to propose another mammoth federal rescue aid package — a $1.9 trillion plan to end what he called “a crisis of deep human suffering.”
Here is a closer look at the economy the 46th president is confronting:
JOBS: MORE LOSSES, LESS SCARRING
The nation has regained more than half the 22 million jobs that were lost to the pandemic in March and April. But hiring has weakened for six straight months. In December, it actually turned negative, with the loss of 140,000 jobs.
Employers may still be cutting jobs because viral cases remain rampant, cold weather is restricting outdoor dining and other activities and consumers are avoiding in-person services, from hotels to airports to retail shops. With the unemployment rate at an elevated 6.7%, a shortage of hiring is prolonging the pain for people out of work.
A major concern for economists is what they call “scarring” in the job market — long-term and permanent job losses that detach people from the job market and diminish their skills and professional connections. This trend tends to make it harder to reabsorb the unemployed into the economy once it recovers.
Here the evidence is mixed: The number of unemployed who say their job losses are permanent — and therefore unlikely to return even when the economy rebounds — has jumped to 3.4 million, more than double the pre-pandemic level. But it appears to be levelling off: The number fell in December and is little changed from August. By comparison, permanent job losses peaked at 6.8 million during the Great Recession in 2008-2009.
And the ranks of those unemployed for 15 weeks or longer has tumbled from more than 8 million in August to 5.5 million last month. Those figures hold out hope that the unemployment rate will fall fairly quickly as growth accelerates.
CONSUMERS PULLING BACK, FOR NOW
The raging pandemic took a fresh toll on the economy over the holiday shopping season, with sales at retail stores falling for three months in a row. Sales at restaurants and bars tumbled 4.5% in December and collapsed by one-fifth for 2020 as a whole.
There are early signs, though, that the $600 checks for most Americans that were authorized in last month's rescue aid package are beginning to boost spending. Economists at Bank of America said that spending on their debit and credit cards jumped 9.7% for the week that ended Jan. 9 compared with a year earlier. That was up from a 2% year-over-year increase before the $600 payments. And the increase was particularly pronounced for those making below $50,000 a year, who spent 22% more, Bank of America said.
HOUSING SIZZLES FOR THOSE WHO CAN AFFORD ONE
Many Americans who have kept their jobs have capitalized on the new work-from-home culture, becoming first-time homebuyers or moving into larger digs. Builders broke ground in December on the most new homes since 2006. Home sales are running about 25% above year-ago levels. Four-fifths of construction jobs lost in the pandemic have returned, a much faster rebound than employment overall.
The housing boost has also lifted home prices nationwide, though the gains have been uneven. An analysis by housing website Zillow has found that the number of cities with a median home price of at least $1 million surged 17% in the year ending in November. But nearly three-quarters of those gains occurred in subdivisions of nine large coastal metros, such as New York, Los Angeles and San Francisco. That trend has likely contributed to worsening wealth inequality since the pandemic began.
MANUFACTURING IS SPARED THE WORST, FOR ONCE
Though factory output is still recovering from the initial pandemic-induced shutdowns, for once the nation's manufacturing workers aren't among the worst-hit. Manufacturing output rose 0.9% last month, its eighth straight increase. And factories have added jobs for eight months.
In a sign of the industrial economy's health, the Union Pacific railroad said it shipped 3% more volume in the final three months of the year, compared with a year earlier, its first gain since the pandemic. Even so, both manufacturing output and employment remain below pre-pandemic levels.
Manufacturers have benefited from a shift in spending toward goods — cars, electronics, furniture and the like — and away from travel and entertainment. Some of that pattern will likely reverse should the vaccines succeed in conquering the coronavirus.
A WILLING FEDERAL RESERVE
One more potential tailwind for the Biden economy is a Federal Reserve that has made clear that it plans to keep its benchmark short-term interest rate pegged near zero through at least 2023. Chair Jerome Powell has also said the Fed will keep buying $120 billion in bonds a month until there is “substantial further improvement” in the economy, which most economists expect will last into 2022. The Fed's bond purchases are intended to keep long-term loan rates low to spur borrowing and spending.
That policy marks a key change for the Fed, which many economists think prematurely raised short-term rates in late 2015 as the economy was still improving and employers adding jobs. That rate increase was motivated by concerns that inflation was poised to accelerate as the unemployment rate fell close to 5%. Yet unemployment eventually fell to 3.5%, with inflation nowhere in sight.
Powell and other Fed officials have stressed that they have learned from that mistake and are now much less concerned about higher inflation and more focused on driving unemployment back down to an ultra-low level.