February 2, 2023

President Joe Biden reassured Americans on Friday that the US economy is making headway into the holiday season, but the strength of a new jobs report showed high inflation remains a recession threat.

At the White House, the president signed emergency legislation to stave off a railroad strike that he said could have lost 765,000 jobs in two weeks and plunged the country into a painful downturn. But many voters and economists still fear a recession is imminent and the price of cutting high prices will be layoffs.
Biden cited the creation of 263,000 jobs in November – while the unemployment rate held steady at 3.7% – as evidence his policies have boosted the economy. He suggested that the biggest risk of recession was the railroad strike, a problem the country avoided by having Congress push through an agreement that would increase wages but not grant the additional paid sick leave that workers were demanding.

“Things are moving — they’re moving in the right direction,” Biden said. “As we head into the holiday season, it all means this: Americans are working, the economy is growing.”

White House officials see reason for optimism. Gasoline prices are averaging $3.45 a gallon, according to AAA, well below the peak in June. The economy is expanding after contracting in the first half of the year. And since July, average hourly workers’ wages have been rising faster than consumer prices.

But inflation can be a game to hit the mole at, and Friday’s jobs report suggested wage growth might actually be part of the problem.

Inflation has been something of a moving target during Biden’s presidency. Supply chain challenges and bottlenecks drove prices higher as the country began to recover from the pandemic in 2021. Higher oil and food costs pushed up inflation after Russia invaded Ukraine in February. And the jobs report showed wage growth accelerating sharply, which could fuel future inflation.

The Federal Reserve is trying to reduce inflation by raising interest rates. This measure reduces economic activity to lower prices.

On Wednesday, Fed Chair Jerome Powell hinted that the Federal Reserve might not need to hike rates so aggressively to bring inflation back to the 2% yearly target. That comment sent the stock market higher, only for optimism to fizzle out on Friday, when new and revised payroll data suggested the Fed might need to do more to cool the economy.

“With these revisions, the pace of wage growth is more in line with 5 percent inflation than 2 percent inflation,” said Harvard University professor Jason Furman, a former top economist in the Obama White House. “In that sense, it may take a larger adjustment in labor markets than previously hoped to bring down inflation.”

The President’s key message is that his policies have helped avoid disasters like a recession caused by a rail strike. The bill, which he signed on Friday, binds rail companies and workers to a proposed agreement reached between the railroads and union leaders in September but rejected by workers at some unions.

“The law I’m about to sign into law ends a difficult railroad dispute and helps our nation avoid what would undoubtedly have been an economic disaster at a very bad time on the calendar,” Biden said. He said his team helped negotiate a “good product, but I think we have more work to do.”

Members of four of the 12 unions involved had rejected the proposed agreement due to a lack of adequate paid sick leave, arguing the possibility of a strike from December 9th. Biden acknowledged the shortage and said he will continue to advocate for that benefit for every US worker.

“I’ve been in favor of paid sick leave for a long time,” said the president, a staunch supporter of the union. “I will continue this fight until we succeed.”

He said Republican lawmakers had blocked the inclusion of seven days of paid sick leave in the agreement and that it was unclear how he would gain support for extending family leave to all workers given the GOP’s majority in the House of Representatives in November’s election would win.

Republican leaders have cast deep doubts on the US economy, with party officials noting that higher prices have pushed Americans’ savings rate to a 17-year low. About three-quarters of voters last month described economic conditions as “bad” or “not so good,” according to AP VoteCast.

Texas Rep. Kevin Brady, the senior Republican on the House Ways and Means Committee, called the jobs report a “nightmare before Christmas.”

“The White House has absolutely no idea of ​​the very real labor shortages that are still hurting Main Street businesses and driving prices up,” Brady said. “And many workers are grappling with real wage losses and pay cuts, making sticker shock a big part of this year’s holiday gift shopping experience.”

Although Biden has said the economy is moving in the right direction, the jobs report suggests it is on a “more difficult path” where it is unclear whether a downturn and eventual job losses can be averted, Daniel Zhao said , Senior Economist at Glassdoor. a job board.

Part of the mixed signals come from the jobs report coming from two surveys. Employers’ wage and salary accounts show how many jobs have been added, while the unemployment rate is determined in a separate household survey.

The two surveys differ, with the household numbers suggesting that the economy has indeed lost jobs over the past two months, contradicting the gains found in the business survey.

Zhao said the economy doesn’t look set to slide into recession, but the risk is that when policymakers review next year’s payrolls backlog, they could learn the US is cutting jobs while the Fed raise interest rates further.

“These polls are out of sync at a critical turning point in the economy,” he said.

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