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    February 2021 Jobs Report Is Expected to Show Only Modest Gains

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    #masthead-section-label, #masthead-bar-one { display: none }The Coronavirus OutbreakliveLatest UpdatesMaps and CasesRisk Near YouVaccine RolloutNew Variants TrackerAdvertisementContinue reading the main storyFebruary Jobs Report Is Likely to Show Limited Improvement: Live UpdatesFebruary jobs report is expected to show only modest gains.March 5, 2021, 5:19 a.m. ETMarch 5, 2021, 5:19 a.m. ETVolunteers at St. Mary’s Food Bank in Phoenix preparing boxes for food donations.Credit…Juan Arredondo for The New York TimesThe Labor Department is scheduled to release its monthly gauge of the American labor market on Friday morning. Economists surveyed by Bloomberg expect only small improvements, estimating a gain of 182,000 jobs and no change in the unemployment rate at 6.3 percent.Roughly 10 million fewer jobs exist today than a year ago, and the January report showed a gain of only 49,000. While economists have offered increasingly optimistic forecasts for growth later in the year, millions of workers are still relying on unemployment benefits and other government assistance. First-time jobless claims also rose last week.Federal Reserve and top administration officials have emphasized that the Labor Department’s figures understate the extent of the damage. More than four million people have quit the labor force in the last year, including those sidelined because of child care and other family responsibilities or health concerns. They are not included in the official jobless count.To carry struggling households and businesses through the coming months, Congress is considering a $1.9 trillion package of pandemic relief.In recent weeks, recruiting sites have had an increase in job postings, but demand remains lopsided. The warehouse, transportation, health care, finance and professional services sectors have shown particular strength. But the parts of the economy hit hardest by the pandemic, like restaurants, travel, salons and entertainment, are still floundering.The February report is also expected to show a decline in state and local government payrolls.“The dominant driver of the labor market right now is the Covid situation and the status of reopenings,” said Robert Rosener, a senior U.S. economist at Morgan Stanley.He added that unusually harsh weather, particularly in the first half of February, right before the government conducted its surveys, could also have depressed hiring last month.AdvertisementContinue reading the main story More

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    Stimulus Checks Helped Personal Income Surge in January

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    #masthead-section-label, #masthead-bar-one { display: none }The Coronavirus OutbreakliveLatest UpdatesMaps and CasesRisk Near YouVaccine RolloutNew Variants TrackerAdvertisementContinue reading the main storySupported byContinue reading the main storyIncome and Spending Gains Are Latest Sign of Economic RecoveryPersonal income and spending both surged in January as a new round of government checks hit Americans’ bank accounts.A Los Angeles mall this week. Money spent on goods rose 5.8 percent in January, but spending on services rose only 0.7 percent.Credit…Philip Cheung for The New York TimesSydney Ember and Feb. 26, 2021Updated 5:00 p.m. ETThe American economic recovery came perilously close to falling off a cliff at the end of last year. But government aid arrived just in time to prevent a disaster — and possibly paved the way for a dynamic rebound.Personal income surged a remarkable 10 percent in January, the Commerce Department reported on Friday. Spending increased last month, too, by a healthy 2.4 percent, largely fueled by a rise in purchases of goods.The report was the latest sign of the economy’s slow but steady march forward after a series of setbacks.Yet the data also underscored the extent to which government aid is buoying the economy. The rise in income last month was almost entirely attributable to the $600 government relief checks approved in December and to unemployment insurance payments. And while spending ticked up, purchases of services remained depressed as the pandemic continued to weigh heavily on the leisure and hospitality industries even as coronavirus cases fell.“Technically, you could say we’re recovering,” said Diane Swonk, chief economist for the accounting firm Grant Thornton. “But the patterns in both income and spending point out the fragility of the recovery without aid to bridge these waters that are poisonous.”That the economy remains reliant on government aid is all the more resonant as Democrats in Washington try to push through President Biden’s $1.9 trillion relief measure, which would provide a round of $1,400 checks that could further power consumer spending.Although the data on Friday indicated that the recovery was still fragile, it provided fresh evidence that it was no longer in danger of moving in reverse, a trend also seen in recent reports on retail sales and orders of durable goods.Yields on government bonds, the basis for mortgage rates and corporate borrowing, have risen sharply this month as investors anticipate a quick pickup in growth. Yields on 10-year Treasury notes, below 1 percent for much of 2020, have climbed to roughly 1.5 percent in recent days.The encouraging data led Morgan Stanley on Friday to raise its forecast of first-quarter economic growth to 2 percent (8.1 percent on an annualized basis) from 1.8 percent. Before Congress passed the round of aid that produced the January checks, many economists thought G.D.P. might shrink in the first quarter.There is a possible downside to a robust, stimulus-powered recovery. Some economists have warned in recent weeks that inflation could become a problem, which could prompt the Federal Reserve to cut back on its measures to bolster the economy. A change of posture from the Fed would probably be seen as bad news for stocks, and trading on Wall Street has been turbulent this week as investors react to the sudden moves in bond yields.But the report on Friday gave no indication that inflation was spinning out of control. Consumer prices were up 1.5 percent in January from a year earlier, well below the Fed’s 2 percent target. More

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    Unemployment Claims Dropped Last Week as Coronavirus Cases Eased

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    #masthead-section-label, #masthead-bar-one { display: none }The Coronavirus OutbreakliveLatest UpdatesMaps and CasesRisk Near YouVaccine RolloutNew Variants TrackerAdvertisementContinue reading the main storySupported byContinue reading the main storyJobless Claims Decline as Coronavirus Cases EaseThe latest reading on the labor market shows evidence of continued healing, though economists caution that the recovery is still fragile.Coronavirus caseloads have been dropping amid vaccination efforts, but until employers and consumers feel that the pandemic is under control, economists say, the labor market won’t fully recover.Credit…James Estrin/The New York TimesFeb. 25, 2021Updated 5:42 p.m. ETNew claims for unemployment fell last week, the government reported on Thursday, the latest sign that the labor market’s recovery, however slow and unsteady, is continuing.“The numbers look encouraging on the face of it,” said Gregory Daco, chief U.S. economist at Oxford Economics.He and other analysts, however, cautioned against reading too much into a single week’s changes. The combined average of new state and federal unemployment insurance claims over the first eight weeks of this year is actually slightly higher than it was over the last eight weeks of 2020.When you take step back and look at the broader picture, Mr. Daco said, “It does reflect an environment in which the labor market remains quite fragile.”A total of 710,000 workers filed first-time claims for state benefits during the week that ended Feb. 20, a decrease of 132,000, the Labor Department said. In addition, 451,000 new claims were filed for Pandemic Unemployment Assistance, a federal program covering freelancers, part-timers and others who do not routinely qualify for state benefits, a decline of 61,000.Neither figure is seasonally adjusted. On a seasonally adjusted basis, new state claims totaled 730,000, a decline of 111,000.On an unadjusted basis, last week’s total was the lowest number of new state claims since the start of the pandemic; seasonally adjusted, it was the lowest since November. The figures are subject to revision as the Labor Department receives more data.Although initial jobless claims are nowhere near the eye-popping levels seen last spring, they are still extraordinarily high by historical standards. There are roughly 10 million fewer jobs than there were last year at this time.Coronavirus caseloads have been dropping amid efforts to get vaccines to people who are most vulnerable. But until employers and consumers feel that the pandemic is under control, economists say, the labor market won’t fully recover.“I can’t imagine we’re going to see big changes in jobless claims for a while,” said Allison Schrager, an economist at the Manhattan Institute.The Coronavirus Outbreak More

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    Why Top Economists Are Citing a Higher-Than-Reported Jobless Rate

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    #masthead-section-label, #masthead-bar-one { display: none }The Coronavirus OutbreakliveLatest UpdatesMaps and CasesVaccine RolloutSee Your Local RiskNew Variants TrackerAdvertisementContinue reading the main storySupported byContinue reading the main storyWhy Top Economists Are Citing a Higher-Than-Reported Jobless RateThe official rate stood at 6.3 percent in January, but using an expanded metric, Fed and Treasury officials say it’s closer to 10 percent.A volunteer at a food distribution center in Inglewood, Calif. Economists are increasingly focused on a measure of unemployment that counts more people who are out of work.Credit…Jenna Schoenefeld for The New York TimesFeb. 22, 2021Updated 2:18 p.m. ETAmerica’s official unemployment rate has declined sharply after rocketing up last year, but top government economic officials are increasingly citing a different figure — one that puts the jobless rate at nearly 10 percent, well above its official 6.3 percent reading and roughly matching its 2009 peak.That emphasis on an alternative statistic, espoused by leaders including the Federal Reserve chair, Jerome H. Powell, and Treasury Secretary Janet Yellen, underlines both the very unusual nature of the coronavirus shock and a long-running shift in the way that economists think about weakness in the labor market.The Bureau of Labor Statistics tallies up how many Americans are actively looking for work or are on temporary layoff midway through each month. That number, taken as a share of the civilian labor force, is reported as the official unemployment rate. But economists have worried for years that by relying on the headline rate, they are ignoring people they shouldn’t, including would-be employees who are not applying to work because they are discouraged or waiting for the right opportunity. Looking at a more comprehensive slate of labor market measures — not just the jobless rate — came into style in a big way after the recession that stretched from 2007 to 2009.The current conversation goes a step further. Key policymakers are all but ditching the headline unemployment rate as a reference point amid the pandemic, rather than just downplaying its comprehensiveness. That highlights the unique challenges of measuring the labor market hit from the coronavirus, and it suggests policymakers will probably be hesitant to declare victory just because the job market looks healed on the surface.“We have an unemployment rate that, if properly measured in some sense, is really close to 10 percent,” Ms. Yellen said on CNBC Thursday. A week earlier, Mr. Powell cited the same figure in a speech about lingering labor market damage.Mr. Powell has been clear that he adjusts the headline unemployment rate for a simple reason: It’s leaving out a whole lot of people.“Published unemployment rates during Covid have dramatically understated the deterioration in the labor market,” Mr. Powell said during that speech. People dropped out of jobs rapidly when the economy closed, and with many restaurants, bars and hotels shut, there is nowhere for many workers who are trained in service work to apply.Enter the new, bespoke metric. To arrive at the 10 percent figure, Fed economists are adding back two big groups.What’s in an Unemployment Rate? Top economic officials are adding labor force dropouts and workers who are misclassified to the share of people who are actively searching for work.
    [embedded content]Sources: Federal Reserve calculations on Bureau of Labor Statistics Data, from Jerome H. Powell speech on Feb. 10The New York TimesThey count those who have been misclassified as “employed but not at work” in the Labor Department’s report, but who are actually on temporarily layoff. Then they add back people who have lost work since last February and are not applying to jobs right now, so that they are officially counted as outside the labor pool.The Coronavirus Outbreak More

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    On the Post-Pandemic Horizon, Could That Be … a Boom?

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    #masthead-section-label, #masthead-bar-one { display: none }The Coronavirus OutbreakliveLatest UpdatesMaps and CasesVaccine RolloutSee Your Local RiskNew Variants TrackerCredit…Maxime MouyssetSkip to contentSkip to site indexOn the Post-Pandemic Horizon, Could That Be … a Boom?Signs of economic life are picking up, and mounds of cash are waiting to be spent as the virus loosens its grip.Credit…Maxime MouyssetSupported byContinue reading the main storyFeb. 21, 2021, 3:00 p.m. ETThe U.S. economy remains mired in a pandemic winter of shuttered storefronts, high unemployment and sluggish job growth. But on Wall Street and in Washington, attention is shifting to an intriguing if indistinct prospect: a post-Covid boom.Forecasters have always expected the pandemic to be followed by a period of strong growth as businesses reopen and Americans resume their normal activities. But in recent weeks, economists have begun to talk of something stronger: a supercharged rebound that brings down unemployment, drives up wages and may foster years of stronger growth.There are hints that the economy has turned a corner: Retail sales jumped last month as the latest round of government aid began showing up in consumers’ bank accounts. New unemployment claims have declined from early January, though they remain high. Measures of business investment have picked up, a sign of confidence from corporate leaders.Economists surveyed by the Federal Reserve Bank of Philadelphia this month predicted that U.S. output will increase 4.5 percent this year, which would make it the best year since 1999. Some expect an even stronger bounce: Economists at Goldman Sachs forecast that the economy will grow 6.8 percent this year and that the unemployment rate will drop to 4.1 percent by December, a level that took eight years to achieve after the last recession.“We’re extremely likely to get a very high growth rate,” said Jan Hatzius, Goldman’s chief economist. “Whether it’s a boom or not, I do think it’s a V-shaped recovery,” he added, referring to a steep drop followed by a sharp rebound.The growing optimism stems from the confluence of several factors. Coronavirus cases are falling in the United States. The vaccine rollout, though slower than hoped, is gaining steam. And largely because of trillions of dollars in federal help, the economy appears to have made it through last year with less structural damage — in the form of business failures, home foreclosures and personal bankruptcies — than many people feared last spring.Lastly, consumers are sitting on a trillion-dollar mountain of cash, a result of months of lockdown-induced saving and successive rounds of stimulus payments. That mountain could grow if Congress approves the aid to households that President Biden has proposed.When the pandemic ends, cash could be unleashed like melting snow in the Rockies: Consumers, released from their cabin fever, compete for hotel rooms and restaurant tables. Businesses compete for employees and supplies to meet the demand. Workers who were sidelined by child care responsibilities or virus fears are drawn back to the labor force by suddenly abundant opportunities.“There will be this big boom as pent-up demand comes through and the economy is opening,” said Ellen Zentner, chief U.S. economist for Morgan Stanley. “There is an awful lot of buying power that we’ve transferred to households to fuel that pent-up demand.”That vision is far from a certainty. Delays in the vaccine rollout could stall the recovery. So could new strains of the virus that render vaccines less effective. A political standoff in Washington could hold up aid for unemployed workers and struggling businesses. And even if the economy avoids all of those traps, there is unlikely to be a single moment when public health officials give an “all clear”; it could be years before people pack into bars and sports stadiums the way they did before the pandemic.A boom also carries risks. In recent weeks, prominent economists including Lawrence H. Summers, a Treasury secretary under President Bill Clinton, have warned that Mr. Biden’s relief proposal is too large and could lead the economy to overheat, pushing up prices and forcing the Federal Reserve to bring the party to a premature end. Fed officials have largely dismissed those concerns, noting that the consistent problem in recent decades has been too little inflation rather than too much.Other economists fear that the rebound will primarily benefit those at the top, compounding inequities that the pandemic has widened.“We may see a boom in the future, but that may just leave some people even further behind, or may give them a trickle when they need a waterfall,” said Tara Sinclair, a George Washington University economist.But for many businesses and households that have struggled to stay afloat during the pandemic, those concerns pale in comparison with the opportunities that a boom could provide.The Coronavirus Outbreak More

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    Biden and the Fed Leave 1970s Inflation Fears Behind

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    #masthead-section-label, #masthead-bar-one { display: none }The Coronavirus OutbreakliveLatest UpdatesMaps and CasesSee Your Local RiskNew Variants TrackerVaccine RolloutAdvertisementContinue reading the main storySupported byContinue reading the main storyBiden and the Fed Leave 1970s Inflation Fears BehindAdministration and Fed officials argue that workers not getting enough stimulus help is a larger concern than potential spikes in consumer prices.Federal Reserve Chair Jerome H. Powell has brushed off concerns about inflation, saying the bigger risk to the economy is doing too little rather than doing too much.Credit…Pool photo by Susan WalshJim Tankersley and Feb. 15, 2021Updated 5:54 p.m. ETWASHINGTON — Presidents who find themselves digging out of recessions have long heeded the warnings of inflation-obsessed economists, who fear that acting aggressively to stimulate a struggling economy will bring a return of the monstrous price increases that plagued the nation in the 1970s.Now, as President Biden presses ahead with plans for a $1.9 trillion stimulus package, he and his top economic advisers are brushing those warnings aside, as is the Federal Reserve under Chair Jerome H. Powell.After years of dire inflation predictions that failed to pan out, the people who run fiscal and monetary policy in Washington have decided the risk of “overheating” the economy is much lower than the risk of failing to heat it up enough.Democrats in the House plan to spend this week finalizing Mr. Biden’s plan to pump nearly $2 trillion into the economy, including direct checks to Americans and more generous unemployment benefits, with the aim of holding a floor vote as early as next week. The Senate is expected to quickly take up the proposal as soon as it clears the House, in the hopes of sending a final bill to Mr. Biden’s desk early next month. Fed officials have signaled that they plan to keep holding rates near zero and buying government-backed debt at a brisk clip to stoke growth.The Fed and the administration are staying the course despite a growing outcry from some economists across the political spectrum, including Lawrence Summers, a former Treasury secretary and top adviser in the Clinton and Obama administrations, who say Mr. Biden’s plans could stir up a whirlwind of rising prices.No one better embodies the sudden break from decades of worry over inflation — in Washington and elite circles of economics — than Janet L. Yellen, the former Federal Reserve chair and current Treasury secretary. Ms. Yellen spent the bulk of her career fighting in a war against inflation that economists have been waging for more than a half century. But at a time when the American economy remains 10 million jobs short of its pre-pandemic levels, and millions of people face hunger and eviction, she appears to be ready to move on.President Biden and Janet Yellen, the Treasury secretary, are pursuing a $1.9 trillion stimulus package to help struggling households and businesses make it through the pandemic downturn.Credit…Pete Marovich for The New York Times“I have spent many years studying inflation and worrying about inflation,” Ms. Yellen told CNN earlier this month. “But we face a huge economic challenge here and tremendous suffering in the country. We have got to address that. That’s the biggest risk.”In the guarded language of a Fed chair, Mr. Powell used a speech last week to push back on the idea that the economy was at risk of overheating. He said that prices could show a brief pop in the coming months, as they rebound from very low readings last year, and he said the economy could see a “burst” of spending and temporarily higher inflation when it fully reopened. But he said he expected such increases to be short-lived — not the sustained spiral that many economists worry about.“That’s really not going to mean very much,” Mr. Powell said, noting that inflation has trended lower for decades. “Inflation dynamics will evolve, but it’s hard to make the case why they would evolve very suddenly, in this current situation.”A small but influential group of economists is questioning that view — in particular, calling for Mr. Biden to scale back his economic aid plans, which include sending direct payments to most American households, increasing the size and duration of benefits for the long-term unemployed and spending big to accelerate Covid vaccine deployment across the country.They argue that the size of the package outstrips the size of the hole the coronavirus has left in the economy. With so many dollars chasing a limited supply of goods and services, the argument goes, purchasing power could erode or the Fed might need to abruptly lift interest rates, which could send the economy back into a downturn.“It’s hard to look at all those factors and not conclude there’s going to be inflationary pressure,” said Michael R. Strain, an economist at the conservative American Enterprise Institute who supported relief efforts earlier in the recession but was among the first economists to warn Mr. Biden’s plans could set off price spikes. “My worry is that by pushing the economy so hard, that will lead to some overheating.”The Coronavirus Outbreak More

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    The Clash of Liberal Wonks That Could Shape the Economy, Explained

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    AdvertisementContinue reading the main storyUpshotSupported byContinue reading the main storyThe Clash of Liberal Wonks That Could Shape the Economy, ExplainedThey all agree pandemic aid is warranted, but the question is how big and how quickly.Feb. 8, 2021Updated 5:43 p.m. ETJoe Biden in an October 2009 meeting with economic advisers, including Larry Summers, second from right. Mr. Summers, then the director of the National Economic Council, is one of the economists now questioning the scale of the Biden administration’s pandemic stimulus plan.Credit…Mandel Ngan/Agence France-Presse — Getty ImagesA fierce debate is underway among centrist and left-leaning economists, taking place in newspaper op-eds, heated exchanges on Twitter, and even at the White House lectern. Unlike most internecine battles within a narrow intellectual tribe, this one will shape the future of the American economy and the political fortunes of the Biden administration.The core question is whether the administration’s $1.9 trillion pandemic rescue plan is too big. Is action on that scale needed to contain the economic damage from the coronavirus and get the economy quickly on track to full health? Or is it far too big relative to the hole the economy’s in, thus setting the stage for a burst of inflation followed by a potential recession, as leading center-left economists including Larry Summers (the former Treasury secretary) and Olivier Blanchard (a former chief economist at the International Monetary Fund) have argued in recent days?This clash of ideas is taking place at a crucial moment. With the Senate at a 50-50 partisan divide, a single Democratic senator who finds the arguments of Mr. Summers and Mr. Blanchard persuasive could require President Biden to trim his ambitions, with far-reaching consequences for his presidency and the economy.The substance of the debate touches on important macroeconomic concepts like economic speed limits, the risks of deficits and the origins of inflation. But it is impossible to separate the substance from the personal history of those involved.It has created stark divides among economic policy thinkers who for the most part know one another, have worked together in government, have spoken at the same think tank events, and share mostly similar political views.Hanging over it all is the legacy of the Clinton-era Democratic policy establishment, and a continuing debate about past policy decisions.What is in dispute?President Biden’s pandemic aid plan includes direct spending for Covid testing and vaccine rollout, expanded unemployment insurance, money for schools and child care, and $1,400 payments to most Americans. It comes on the heels of a $900 billion bipartisan pandemic aid act enacted in December.For weeks, policy veterans have been fretting among themselves over the scale of Mr. Biden’s proposal, in private emails and text chains. Mr. Summers made those concerns public with an op-ed in The Washington Post last week. Mr. Blanchard has backed him on Twitter, as has Jason Furman to some degree, chairman of the Council of Economic Advisers under President Barack Obama.What is their argument?As Mr. Summers wrote, it is a good idea to spend whatever it takes to contain the virus and enable the economy to recover quickly from its pandemic-induced downturn. Provisions that strengthen the safety net for those who are suffering are worthwhile.The problem, he says, is that the plan’s total size reaches a scale that risks major future problems. In particular, the total money being proposed far exceeds most estimates of the “output gap.” (More on that below.) That implies that much of that spending will just slosh around the economy, causing prices to rise, potentially hindering the rest of Mr. Biden’s agenda and risking a new recession.This isn’t a conventional argument between doctrinaire deficit hawks and doves, but something more subtle. In the past, Mr. Summers in particular has repeatedly called for larger budget deficits to help combat “secular stagnation,” in which major world economies are mired in slow growth, and he has supported large pandemic aid packages.But Mr. Summers says any new spending package should pay out gradually over time and be devoted more substantially to long-term investments.“There is nothing wrong with targeting $1.9 trillion, and I could support a much larger figure in total stimulus,” he wrote in a follow-up article. “But a substantial part of the program should be directed at promoting sustainable and inclusive economic growth for the remainder of the decade and beyond, not simply supporting incomes this year and next.”What’s the output gap?Imagine a world in which the American economy is cranking at its full potential. Pretty much everyone who wants to work is able to find a job. Every factory is at its complete capacity. The output gap is, simply, how far away the economy is from that ideal state.A traditional approach to fiscal stimulus has been to estimate the size of that gap, apply some adjustments to account for the way federal spending circulates through the economy, and use that arithmetic to decide how big a stimulus action ought to be.In theory, if the government pumps too much money into the economy, it is trying to generate activity over and above potential output, which is impossible to sustain for long. Workers might put in overtime, and a factory might run extra hours for a while, but eventually the workers want a breather, and the machines need to shut down for maintenance. If there is more money floating around in the economy than there is supply of goods and services, the result won’t be increased prosperity, but rather higher prices as people bid up the things they want to buy.By that traditional thinking, Mr. Summers and other skeptics are on solid ground. The Congressional Budget Office is projecting an output gap for 2021 of only $420 billion, implying that $1.9 trillion in additional cash is much more than the economy needs to fill the gap. Even if you believe the C.B.O. is too pessimistic about America’s potential, we’re talking orders of magnitude of difference.There are problems with this argument, though. For one, potential output is a theoretical concept, not something we can ever know with precision. In fact, there is a solid case to be made that technocrats have underestimated the economy’s true potential for years, given the absence of inflation in 2018 and 2019 despite a hot job market.For another, it imagines the economy as a series of hydraulic tubes, in which a skilled engineer can push the right buttons to achieve a predictable outcome. In macroeconomics, especially in the era of a once-a-century pandemic, things might not be so simple.How is the Biden administration responding?Aggressively.Treasury Secretary Janet Yellen and other top officials have taken to the airwaves in recent days to argue that their proposal is prudent and appropriately scaled.Administration officials have described the plan as “bottom-up,” meaning it was devised by starting with specific problems facing Americans — a lack of income for those out of work, bottlenecks in vaccine delivery, a lack of funds for school reopening — and then ending with forecasts of the sums necessary to solve those problems.Their argument is that the United States is in a do-whatever-it-takes moment, and that the most urgent goal is to try to ensure that the economy can fully reopen as quickly as possible while preventing potential lasting damage to families and businesses.“I think that the idea now is that we have to hit back hard; we have to hit back strong if we’re going to finally put this dual crisis of the pandemic and the economic pain that it has engendered behind us,” Jared Bernstein, a member of the White House Council of Economic Advisers, said in a news briefing Friday.They do not dismiss the possibility that there will be higher inflation down the road — but say it is a manageable risk.Inflation is “a risk that we have to consider,” Ms. Yellen said on CNN’s “State of the Union” on Sunday, but “we have the tools to deal with that risk if it materializes” and “we have a huge economic challenge here and tremendous suffering in the country.”“That’s the biggest risk,” she said.In the logic that has prevailed within the administration and among other former officials who support the approach, it misses the point to theorize about output gaps and inflation risks. They say this relief should be thought of differently than traditional fiscal stimulus.“Relief payments are life support,” wrote Austan Goolsbee, another former Obama adviser. “To avoid permanent damage, they need to last as long as the virus does. Without them, the chance of deterioration and irrevocable harm soars.”So if this passes, is there really going to be a huge burst of inflation?Maybe.The economy is in uncharted territory. With potentially trillions of pandemic aid spending on the way — in addition to vast accumulated savings over the last year because of Americans’ pandemic-constrained spending and stimulus-boosted incomes — there is a lot of money poised to be spent.And some things may reduce the supply of goods and services, like disruptions to global supply chains resulting from the pandemic and business closures.Lots of money chasing finite supply is an Economics 101 recipe for surging prices.But for the medium term, the more important question is whether any inflation surge would be a temporary not-so-harmful phenomenon or the start of something more lasting.Why does that matter?The Federal Reserve will be inclined to mostly ignore a one-time shock of post-pandemic inflation. Chair Jerome Powell said so in a news conference last month.There is a possibility “that as the economy fully reopens, there’ll be a burst of spending because people will be enthusiastic that the pandemic is over,” Mr. Powell said. “We would see that as something likely to be transient and not to be very large.”In that case, he said, “the way we would react is we’re going to be patient.”It might even help rebalance the economy after years in which the United States has depended on low interest-rate policies from the Fed to keep growth afloat. Somewhat higher inflation would mean lower “real,” inflation-adjusted interest rates, and might gain the Fed some credibility that it will not permit inflation to be persistently too low. It could, plausibly, get back to above-zero interest rates sooner than it would otherwise, taking the air out of financial bubbles and giving it more room to combat the next downturn.However, if surging prices were to create a vicious cycle of higher prices and higher wages, the Fed would be inclined to raise interest rates enough to try to break that cycle — potentially driving the economy into another recession in the process. That is the last thing that American workers need, let alone Democrats seeking to hold Congress in 2022 and the White House in 2024.So is this part of a wider philosophical divide among Democratic economists?There is no ideological chasm here.But there is a deeper division than just the technical question of the output gap’s size or what the risks are of too much versus too little pandemic aid. Rather, the Biden approach represents a rejection of the technocratic bent within the Democratic Party that many on the left believe has been deeply damaging to the country.President Bill Clinton and President Obama relied for economic advice on what might be called the Bob Rubin coaching tree. Mr. Rubin, who served as Treasury secretary in the 1990s, was a mentor to Mr. Summers, who was a mentor to Timothy Geithner, Mr. Obama’s first Treasury secretary, and so on.The policymakers in this tradition view themselves as rigorous, careful and pragmatic. Many liberals view them as excessively moderate, too deferential to Wall Street and clueless about the political dynamics that could make for durable policies to help the working class.The Biden administration includes many top officials from outside that tree, such as Ms. Yellen. And it is particularly seeking to correct what are seen as the mistakes of the early Obama administration, when Mr. Summers and Mr. Geithner were in top jobs.The new administration sees this as a moment of profound crisis, a time when it must act on a scale commensurate with the problem. It is betting that if it solves the problem, its political fortunes will be better rather than worse, and it can always deal with inflation or other side effects if they come.In a sense then, the debate over pandemic aid isn’t entirely about output gaps or risk trade-offs. It’s about which mode of policymaking ought to prevail in the Democratic Party.AdvertisementContinue reading the main story More

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    The Jobs Crisis Is Broader Than It Seemed

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    #masthead-section-label, #masthead-bar-one { display: none }The Coronavirus OutbreakliveLatest UpdatesMaps and CasesSee Your Local RiskVaccine InformationWuhan, One Year LaterAdvertisementContinue reading the main storyUpshotSupported byContinue reading the main storyThe Jobs Crisis Is Broader Than It SeemedJanuary employment numbers suggest a stalling of progress toward a full recovery.Feb. 5, 2021Updated 1:09 p.m. ETCustomers at a taco restaurant in Manhattan this week. The past year has been brutal for the hospitality industry, but the most recent job figures suggest it’s far from the only sector suffering.Credit…Carlo Allegri/ReutersTo understand what is important about the new employment numbers released Friday, imagine two different varieties of economic downturn.In one, a handful of industries experience a near-shutdown for reasons beyond anyone’s control, driving millions of people out of their jobs. But most other industries carry on unfazed.In another, a broad contraction in spending causes job losses across the economy. The story is not so much about one or two industries being devastated, but lots of them experiencing moderate pain.Both would involve a lot of human suffering, and both would justify government help to the people affected. But they would have strikingly different implications for specific government action.In the first case, you would want very carefully targeted help to enable the people affected to stay on their feet until their industry can reopen. In the second, you would just want to pump money into the economy, to stimulate overall demand for goods and services.In the early phase of the coronavirus pandemic, we saw both types of downturns. Travel-related industries were most affected and experienced the worst job losses, and the pain was sufficiently widespread that there was a generalized crisis of inadequate demand.But as the year progressed, that changed. The federal government injected trillions of dollars into the economy, and the Federal Reserve’s actions to support the financial system generated a rally in markets. Industries that were less directly affected by the pandemic figured out how to get up and running safely. And there was a veritable boom in people who bought stuff — durable goods, to be precise, like furniture and exercise equipment — spending some of the money they couldn’t spend on services like restaurant meals.By the end of 2020, you could tell a story in which workers at hotels, airlines, restaurants and performance arenas desperately needed a hand, but most of the rest of the economy seemed comfortably on a path back to full health.The January employment numbers, however, undermine that story. They suggest a stalling, and in some areas a reversal, of progress toward a full recovery even in the segments of the economy not directly affected.There’s plenty of pain to be found in the leisure and hospitality sector, of course — it lost 61,000 additional jobs on top of a revised 536,000 lost in December. This is a brutal winter for the workers in restaurants, hotels and live entertainment venues. But if that were the extent of the pain, generous unemployment checks to the people affected might be enough to solve the problem. After all, we know what it will take to get those industries back to health: widespread vaccination and an easing of public health fears.The Coronavirus Outbreak More