- January’s report on the payroll proved disappointing and more Americans left the workforce.
- The report reinforces calls for President Biden’s $ 1.9 billion stimulus plan.
- The absence of new aid could cause permanent scars on the labor market, a former Fed economist said.
- Visit the Insider Business Department for more stories.
The January job report painted a bleak picture of the recovery of the U.S. labor market. And that may just be what the Biden government needs to justify its $ 1.9 billion stimulus package.
The initial reading of the Bureau of Labor Statistics’ Friday report was somewhat encouraging. The U.S. added 49,000 non-farm payrolls last month, a sharp reversal of losses seen in December. The unemployment rate also dropped to 6.3% from 6.7%.
Closer examination, however, shows that an economy is still struggling to recover. Economists polled by Bloomberg expected 105,000 new payrolls last month, more than double the additions actually seen. The number of permanent redundancies has increased. Wage growth for December and November was revised lower. And much of the decline in the unemployment rate was linked to the fact that more Americans are ending their job search and dropping out of the workforce.
Former Federal Reserve economist Claudia Sahm told Insider Claudia Sahm, a former Federal Reserve economist, has halted the recovery of the labor market for all intents and purposes with 10 million jobs still lost for the COVID-19 recession.
“$ 1.9 billion is the least we have to do at the moment,” Sahm said. “A year later, people are tired, the hardship is increasing, and the longer it goes on, the more permanent damage.”
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“We can not do too much”
President Joe Biden’s stimulus proposal includes $ 1,400 direct payments, an extension of enhanced unemployment benefits, and aid to state and local governments. The administration is considering lowering the threshold for those receiving payments, but no final decision has been made.
The Biden government is already pointing to the report as a green light to adopt an uncompromising emergency relief package. The current pace of wage growth will take a decade to get full-time jobs, Biden said.
“We can not do too much here. We can do too little. We can do too little and sputter,” he added, according to CNN reporter Kaitlan Collins.
The disappointing data “underscores the need to grow up” and does so quickly, said Baharat Ramamurti, deputy director of the National Economic Council. Yahoo Finance.
Other officials rebuked allegations that Biden’s plan may have too much of a price tag. Larry Summers, director of the NEC under President Barack Obama, told The Washington Post on Thursday that Biden’s $ 1.9 billion package could face massive inflationary pressures and should be smaller.
Jared Bernstein, a member of the Board of Economic Advisers, dismissed Summers’ concern Friday, adding that Biden’s proposal was primarily aimed at restoring the lost economic capacity for the pandemic.
“I think he’s wrong in a very deep way,” Bernstein told CNN. “We have consistently said that the risks of getting too small are far greater than the risks of doing too much.”
To be sure, the Democrats have taken several steps to make the president’s proposal successful in the coming weeks. The Senate voted early Friday morning along party lines on a budget resolution paving the way for the passage of the plan. While the president has indicated he hopes to garner Republican support for the measure, Democrats would soon be able to pass the legislation through budget reconciliation and without any dual support.
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The removal of low earners
A comprehensive relief package also has a better chance of reviving the pockets of the economy that hit the pandemic the worst. Where higher-wage jobs have generally been reduced by the pandemic, lower-paying industries and service sectors have yielded the most payrolls in recent years. The latter group is also likely to be the last to recover as lasting health care discourages Americans from spending on services.
The proposed extension to the increased federal unemployment insurance could encourage Americans to continue looking for work as the economy slowly reopens, Sahm said. The spread of stimulus tests could then encourage Americans to spend more and in turn create more demand at small businesses that reduce the payroll, she added.
Even if the US were to add 1 million salaries each month, it would take the rest of 2021 to fully fill the gap the country is currently facing. And every month of stagnant growth runs the risk of driving more people out of the workforce and making more job losses permanent, Sahm said.
“That’s why it has to be big and it has to pass very quickly. Because why wait?” said the former Fed economist. “We don’t add work. We have to add work, and that’s the way to do it.”
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