March Jobs Report: Where We Are, Where We’re Going

by Bernard E. Anderson, Ph.D.

Chief Economic Adviser, National Urban League, and  Whitney M Young, Jr. Professor Emeritus, The Wharton School, University of Pennsylvania 

        The economy was near full employment in February 2020 when Covid 19 struck. The lockdowns and social distancing that were imposed to contain the spread of the virus threw the economy into recession.  But the virus generated economic crisis differed significantly from market-based recessions.  The 2020  economic decline  was faster, but much shorter (two months), and more concentrated than the Great Recession, which lasted from November 2007 to June 2009.  GDP started to bounce back in May 2020 as efforts to contain the virus took root.

        The hospitality/leisure industry took the hardest hit, followed by the personal service sector. Other major industries like manufacturing, financial/business services, warehousing/transportation and several others, including education converted to virtual and online operations ,maintaining output with far fewer layoffs.  Low income, minority group women were disproportionately affected with job loss and labor market difficulties.

        Congress passed the $ 2.0 trillion  CARES ACT, including unemployment compensation, and cash payments to boost household income , grants to state and local government to help maintain public services. The Act also included housing regulations to ease the impact of the economic crisis on low- and middle-income families.  The Federal Reserve board slashed the Federal Funds rate to near zero and created 11 credit facilities to  bolster business liquidity.

        These measures largely maintained consumer spending. The economy grew 33.4 % in Q.3,2020, and 4.1 % , the annually adjusted  growth rate in Q.4.  A $ 600 billion stimulus package was enacted in October 2020, to maintain household income.  But the economy remained in a deep hole with more than 10 million workers unemployed,  total employment remained  well below the pre-pandemic level, and weekly unemployment claims exceeded 700 thousand for seven months.

        In order to revive the economy and spur stable, balanced growth, the Biden administration proposed, and Congress enacted the $ 1.9 trillion American Rescue Plan.

The unprecedented government spending program includes funding to accelerate vaccinations, boosts household income with $1,400 cash payments to low- and middle-income individuals, $25 billion for  restaurants and bars, $ 40 billion for renters and homeowners facing eviction and foreclosure, $ 100 billion for farmers, small businesses and selected service industries,(including a $ 5 billion set aside for black farmers), $ 178 billion to reopen schools, and $ 350 for state and local government.

        A major component of the Act is $219 billion for child tax credits and childcare for working mothers.  This support is projected to cut child poverty in half over the next five years.

        Data collection sources report that consumer confidence rose 19.3 points in March 2021, and FHFA home prices rose 12 % over the year. New home sales grew 8.2 % over the year. Nonmanufacturing orders grew 15.9 points, and manufacturing orders grew 3.2 points,

        Construction increased in most regions of the country, though construction faced major interruptions in the South and Midwest because of severe weather conditions in February and March. Building costs and prices are rising because  building materials production is lagging demand.

        Accelerating business activity is driven by large government spending, leading some economists and members of Congress to express deep concern about the debt and the potential for  rising inflation.    But Federal Reserve Board Chairman Jerome Powell noted that the Fed is monitoring conditions carefully and will use available tools to control  unacceptable inflation.

        There was no evidence of the Phillips Curve, i.e., simultaneously rising unemployment and inflation when the economy recovered from the Great Recession from 2009 to 2020. Inflation remained well anchored as the unemployment rate fell toward full employment.  The Fed is following a policy to maintain low interest rates until core inflation stabilizes at 2.0 percent. The most recent PCE was 1.5 percent.

        In conclusion, the economy is gradually pulling out of the deep hole it was thrown into by Covid 19.   The recovery is driven by unprecedented fiscal policy, coordinated with accommodationist monetary policy . The counter cyclical policies are supplemented by regulatory measures designed to ease the burden on working families. As a result, the American people  are likely to weather the Covid 19 storm better than any previous economic crisis.