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Job fears, price spikes mean heartburn for Biden White House as economy revs up

EconomyMay 16, 2021 07:10AM ET
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© Reuters. FILE PHOTO: U.S. President Joe Biden leaves after speaking about the coronavirus disease (COVID-19) response and the vaccination program from the Rose Garden of the White House in Washington, U.S., May 13, 2021. REUTERS/Kevin Lamarque

By Howard Schneider and Jarrett Renshaw

WASHINGTON (Reuters) - High unemployment. Rising prices. Gas lines.

They're a bad memory for Americans old enough to remember the 1970s - but they're also likely causing a few sleepless nights in the White House, as the United States' economic recovery from the unprecedented coronavirus recession hits some bumps.

The jolts are dampening consumer confidence, ramping up inflation fears, and helping Republicans build their case against President Joe Biden and his ambitious plans to revamp the U.S. economy with trillions in new spending.

As the 1970s show, high joblessness and rising prices the United States saw in April can be a potent political force.

Republicans crafted a "misery index" out of the two factors to attack then-president Jimmy Carter. After hitting 75% approval ratings early in his presidency, the Democrat was trounced in a 1980 landslide.

Graphic - The "misery index" revisited: https://graphics.reuters.com/USA-ECONOMY/MISERY/oakpeknqqpr/chart.png

Support for Biden remains strong and U.S. equity markets remain near record highs.

The White House says there's bound to be surprises as the United States emerges from an unprecedented pandemic.

"We must keep in mind that an economy will not heal instantaneously," Cecilia Rouse, the chair of the White House Council of Economic Advisers told reporters Friday. "It takes several weeks for people to get full immunity from vaccinations, and even more time for those left jobless from the pandemic to find and start a suitable job."

Rouse, speaking to reporters at the White House, said a mismatch between supply and demand due to the pandemic and the economic snap-back had pushed inflation higher but that the mismatch should prove temporary.

"I fully expect that will work itself out in the coming months," she said.

The Federal Reserve also is betting heavily inflation will cool on its own, even as hiring picks up steam over the summer, Americans start to travel again, and the Fed keeps its massive crisis levels of support intact https://graphics.reuters.com/HEALTH-CORONAVIRUS/USA-SAFETY-NET/rlgpdwwjjvo/index.html.

The White House wouldn’t offer a timeline for when the economy will smooth out. But it doesn't expect a repeat of April's weak jobs report, and recent data show applicants for unemployment benefits fell to a 14-month low.

"The trend lines continue to be positive," a senior White House official told Reuters on Wednesday. The White House also believes the Fed can handle what comes up, he said.

"We haven't seen anything that is suggested that the Fed doesn't have an ample toolkit to manage any of the risks that might present themselves."

ROUGH WATERS AHEAD

Still, there's more turmoil in months to come.

Republicans, divided by former President Donald Trump's false claims that the 2020 election was stolen from him, have seized the moment to knock the foundation of Biden's economic plans - raising taxes on the wealthy and companies.

"You won't find any Republicans who are gonna go raise taxes. I think that's the worst thing you can do in this economy," House Republican leader Kevin McCarthy told reporters outside the White House, citing inflation fears and gas prices.

The U.S. Chamber of Commerce, the powerful corporate lobby group, is pushing for repeal of special unemployment payments that were a cornerstone of Biden's campaign, and over a dozen state governors have decided to roll them back early.

With 7.5 million more people either unemployed or out of the job market altogether compared to before the pandemic, even a month or two more of weaker-than-expected job growth and rising prices would up the pressure on Biden and the Fed.

Graphic - The jobs hole facing Biden and the Fed: https://graphics.reuters.com/USA-ECONOMY/JOBS/xlbpgygrnpq/chart.png

"If we get one more April that is concerning," said Gregory Daco, chief U.S. economist at Oxford Economics.

Some early data suggest that May's jobs report could be weak as well.

Graphic - Oxford Economics Recovery Index: https://graphics.reuters.com/USA-ECONOMY/OXFORDINDEX/yzdvxqzmkpx/chart.png

If workers don't take jobs for whatever reason - continued fear of disease, lack of childcare, and higher-than-usual unemployment benefits have been cited - it would indicate "a significant supply constraint," Daco said. Then, he said, "the question is how do you get people back? And that is a different question than pumping stimulus into the economy."

The Biden administration, workers, labor advocates and some economists have argued firms should raise wages if they're having trouble hiring, and some, including McDonald's Corp (NYSE:MCD) have followed suit.

Federal Reserve officials concede things could be tricky.

"The question of how to unclog the labor market is going to be a critical one," and could limit overall economic growth this year if it takes too long, said Richmond Federal Reserve president Thomas Barkin.

UNEXPECTED BOTTLENECKS

While "unsticking" the labor market is one challenge, stamping out price flare-ups as Americans return to schools and offices and go on vacation once again is another.

Consumer sentiment in early May tumbled as people worried about rising prices. Inflation expectations for the year ahead and over the next five years rose to their highest in more than a decade.

"You have a logistical challenge of shutting down an economy and bringing it back up and we are not built for that," Barkin said.

The Colonial Pipeline shutdown that led to gas lines in some southern states had nothing to do with the pandemic, and was lifted Wednesday. But it could take "some time" before it returns to normal, Biden said Thursday.

A semiconductor shortage that started before Biden took office continues to drive up car prices, as pandemic-shy Americans look for alternatives to public transportation.

Home builders point to surging lumber prices they say threaten the critical housing market and the broader economy. Prices for materials used in construction jumped 19.7% from April 2020 to last month, the largest increase in the 35-year history of the series, according to Ken Simonson, the chief economist for the Associated General Contractors of America.

The White House declined to elaborate on specific remedies it might pursue to help the supply side of the economy, but pointed to steps to bring fuel to market after the Colonial Pipeline shutdown.

'WHIP INFLATION NOW'

Carter and his predecessor Republican Gerald Ford found inflation impossible to beat, but faced more endemic problems in the 1970s.

A Ford push to encourage Americans to save more and spend less, 'Whip Inflation Now' or WIN, was an abject failure.

Gas lines then were the result of entrenched geopolitics, not a one-off hack. Inflation was much higher and fed by a country-wide psychology that prices and wages should just keep going up - an important difference that Fed officials are adamant they will not allow to recur.

The country actually added an average of 215,000 jobs monthly during the Carter years. Yet unemployment was rising because so many new workers were joining the labor force, thanks to demographic trends and more women working outside the home for the first time.

Biden faces a very different problem - a job market in the wake of a deadly pandemic that has left workers constrained, nervous, or living off savings and unemployment benefits for now. But that doesn't mean his job is any easier.

Job fears, price spikes mean heartburn for Biden White House as economy revs up
 

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Comments (17)
Mark Stallone
Mark Stallone May 16, 2021 2:19PM ET
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Relax. Open border, gas shortage, inflation, mid-east on fire.. It's all part of Building Back "Better".
Kaveh Sun
Kaveh Sun May 16, 2021 2:00PM ET
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Biden is throwing money in the wind is the reason. They have no heartburn. If they do, they would slow down. There is no slow down on the horizon. All r in for socialist, the free money throwing party continue as ussual.
James Andrews
James Andrews May 16, 2021 1:06PM ET
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Pathetic how the Mainstream Media always calls Trump's election claims "false". Six partisan state officials illegally changed election laws weeks before the election. THAT is fraud in itself, and there's no debate it happened.
Investing Man
Investing Man May 16, 2021 1:01PM ET
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CEOs have plenty of our tax money in their bank accounts they were supposed to use to lift up the american people. Why so quiet?
Investing Man
Investing Man May 16, 2021 1:00PM ET
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Everyone is manufacturing sudden shortages and problems all hoping for that sweet tax money lol
Vlad Lozovskiy
Vlad Lozovskiy May 16, 2021 12:23PM ET
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Hey lelfties! How is $2000 handout works for ya?
Raymond Huggard
Raymond Huggard May 16, 2021 12:22PM ET
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Biden already crowned as worst president of all time.
Mark Stallone
Mark Stallone May 16, 2021 12:22PM ET
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De-Crowing Obumer
Ricardo Diogo
rcd72 May 16, 2021 11:38AM ET
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fed careless driving is the reason.immediate tightening must be done .tax cripto now
danny Levine
danny Levine May 16, 2021 11:21AM ET
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money printing apparently works, (in the opposite sense)
Ferdinando Riboni
Ferdinando Riboni May 16, 2021 10:27AM ET
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Obey China 🇨🇳 slow joe
Catholic Man
CatholicMan May 16, 2021 9:55AM ET
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carter 2.0, feel the fail
talented trader
talent5566 May 16, 2021 9:14AM ET
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at that time there where no computer trading nor feds super computers to pump the dump
Jo Pa
Jo Pa May 16, 2021 9:12AM ET
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The worst thing a politician can ever say to you is "I'm here to help."
Mart Bab
Rubberduck1973 May 16, 2021 8:13AM ET
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Wealth tax is not taxing the economy. It’s taxing the wealth of the super wealthy. This money is taken out of the system and put back in the system by investing in stuff the system needs. Like infrastructure. The system doesn’t need a 5000 million dollar boot. The system doesn’t need space travel. The system doesn’t need inflated bank accounts.The system needs good roads, 5g, sustainable energie, educational, etc
Jo Pa
Jo Pa May 16, 2021 8:13AM ET
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The system needs capable men investing their wealth, not corrupt government bureaucrats confiscating investments and redistributing it to incapable single moms.
rmdebla smith
rmdebla smith May 16, 2021 8:13AM ET
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Jo Pa  Trump admin  had multi-million/billionaries working for  it.  Couldn't  finish a wall let alone get  a national infrastructure endeavor going with states.  Sooooo   the rich will get things done then?  Not!
Investing Man
Investing Man May 16, 2021 8:13AM ET
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The rich “hey give us all your money we promise we wont just give it to our own friends”...and all the fools here fell for it
Peter BullMarket
Peter BullMarket May 16, 2021 7:59AM ET
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Joe Biden is not fit for presidency.
Mart Bab
Rubberduck1973 May 16, 2021 7:59AM ET
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You think Joe Biden is the problem? Let me put it this way. Joe Biden is maintaining the greediness of the system by proposing a small tax cut on the wealthy. In the end this money will flow back to the wealthy, when spend on infrastructure. Just a small distraction from the real solution. All governments need to pick up their game if it comes to taxing the wealthy who always seem to find a clever way to dodge paying tax. It the don’t succeed, I think there will be a revolution before 2025. Because people are not accepting a system any more that only seem to favor the wealthy. The wealthy might get attacked for being wealthy. So they should thank Joe for postponing that revolution.
Catholic Man
CatholicMan May 16, 2021 7:59AM ET
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Mart Bab what a bunch of hooey
danny Levine
danny Levine May 16, 2021 7:59AM ET
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Biden cheated. I do not recognize him as the president
Dave Jones
Dave Jones May 16, 2021 7:38AM ET
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what a load of twaddle! I feel sorry for you Mr. Reporters to either believe what you write or to be part of the deceit. Either way shame on reuters!
Klaus Weyers
Klaus Weyers May 16, 2021 7:23AM ET
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all the left knows is raising raxes on the most productive Anericans.. and handing out goodies to the least.. a recipie for disaster.. most taxes are government sanctioned theft anyway.. home of the free has become a joke.. very sad development in what used to be the best country and economic system in the history of man.. i wish Joe would visit Cuba or Venezuela or study how East Germany went bankrupt under socialism..
Mart Bab
Rubberduck1973 May 16, 2021 7:23AM ET
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You Russian propagandist?
Klaus Weyers
Klaus Weyers May 16, 2021 7:23AM ET
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no.. I am German born American capitalist
Trat Nguyen
Trat Nguyen May 16, 2021 7:23AM ET
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Klaus Weyers  You're a German resident alien.  You aren't an American, and you're a full-time scam artist.  Take your loser self back to Germany and die.
 
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