The U.S. labor market will ultimately determine the timeline for America’s post-pandemic economic recovery. When consumers are employed or feel optimistic about their employment outlook, they are much more willing to spend their money and drive our economy forward. A robust labor market also fuels wage growth. This combustible mixture of job growth and rising wages drives consumer spending, which accounts for 68% of our nation’s economic growth.
Last February, the national unemployment rate reached a 50-year low of 3.5%. Two months later, it exploded to 14.8% as the nation’s economy reeled from the pandemic-related business closures and restrictions. In March and April, the U.S. economy lost 22.4 million jobs, wiping out all job gains over the past 10 years.
The labor market has since made sizable, steady progress. In January, the unemployment rate was reported at just 6.3%, and nearly 12.5 million jobs have been recovered. But the road to a full recovery now lies in the hands of President Biden.
On Friday, the Department of Labor released its monthly Employment Report for February — the first full month under the Biden Administration. In February, the unemployment rate fell to 6.2% while the economy added 379,000 new jobs. Both beat Wall Street’s forecast of 6.3% and 175,000, respectively.
Of the 11 sectors tracked by the Department of Labor, only six reported job gains in February. However, it was the heavily beleaguered Leisure & Hospitality sector that reported the largest monthly gain, adding 355,000 jobs. Rounding out the Top 3 were Professional & Business Services (+63,000) and Trade, Transportation & Utilities (+49,000). The worst performing sector was Construction, which reported a loss of 61,000 jobs in February.
In his first year as president, Biden will have significant economic tailwinds to his advantage. As the vaccines continue to make their way into the population, the U.S. economy will increasingly open up. Moreover, tens of billions of consumer dollars — sitting idly in Americans’ bank accounts for the past 12 months — will suddenly be unleashed on a now open U.S. economy. This flood of consumer spending should provide a substantial boost to the economy, and more importantly, to the labor market as jobs are created to meet the surge in demand for goods and services.
Unfortunately, the post-pandemic economic surge will eventually wane and the road will be much tougher for Biden in 2022 and beyond. Biden needs to realize that a strong, vibrant labor market can offset other deficiencies in the economy. In 2019, despite a brutally weak global economy and America’s punishing trade disputes with China, Canada, Mexico and the European Union, the U.S. economy remained one of the strongest in the world. To his credit, former President Trump realized a record-setting labor market was the cornerstone of that strength, which was reflected in his economic policies.
As with Trump, Biden’s economy will also have its share of imperfections. Likewise, Biden needs to focus his policy agenda on the labor market to help overcome those obstacles. Americans aren’t expecting an overnight return to a 3.5% unemployment rate. But by the end of four years, a sub-4% rate needs to be delivered.
Mark Grywacheski is an expert in financial markets and economic analysis and is an investment adviser with Quad-Cities Investment Group, Davenport.
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