The economy is booming but far from normal, which presents a challenge for Biden

The US economy is growing at its fastest pace in a quarter of a century, but it remains far from normal, with some workers and small business owners facing increasingly difficult times while others prosper. This discrepancy poses a challenge to President Biden, who has promoted the country’s economic recovery as a selling point in his quest to garner support for a multibillion-dollar spending program that could cement his legacy.

A summer that many business owners and consumers hoped would bring a return to pre-pandemic activity has caused waves of disappointment in key areas. Restaurants are understaffed and wait times are long. Prices have skyrocketed for food, gasoline and many services. Buyers have a hard time finding used cars. Traders are struggling to hire. Beach towns are teeming with tourists, but office towers in major cities remain ghost towns on weekdays as the promised return of workers being delayed by coronavirus resurfaces.

The University of Michigan Consumer Sentiment Index suffered one of its largest monthly losses in 40 years in August, due to the rapid spread of the Delta variant and high inflation. The survey’s chief economist, Richard Curtin, said the drop also reflected “an emotional response, dashed hopes that the pandemic would end soon and that life could return to normal.”

Mr. Biden and his advisers are confident many of these issues will improve in the fall. They expect hiring to continue at a steady pace or even accelerate, fattening workers’ paycheques and fueling consumer spending. They remain hopeful that a rejuvenated labor market will replace the fading stimulus of the president’s $ 1.9 trillion economic aid bill signed in the spring, and that the latest wave of the virus will not slow the economy down. growth significantly.

On Friday, they released new projections predicting growth to hit 7.1 percent this year after adjusting for inflation, its highest rate since 1983.

“Our perspective is to look at an economy that is growing at historic rates,” said Brian Deese, director of Mr. Biden’s National Economic Council, in an interview.

But there is growing evidence that the next few months of the recovery could be more hesitant and chaotic than administration officials predict, potentially putting millions of workers left behind as their federal backing runs out.

Private forecasters lowered growth expectations for the end of the year, citing spending brakes due to the spread of the Delta variant and the nationwide expiration of enhanced unemployment benefits after this week. Emerging research suggests that ending these benefits may not immediately put Americans back into the workforce to fill the record level of open jobs nationwide.

“People will be surprised how much the economy slows over the next year or so as the recovery wears off,” said Jim O’Sullivan, chief US macro strategist for TD Securities.

Administration officials recognize some potential obstacles. Some inner cities of major cities may never return to their pre-pandemic realities, and the economy will not be fully “normal” until the virus is fully under control. They stress that increasing the country’s vaccination rate is the most important economic policy the administration can pursue to accelerate growth and boost consumer confidence, which collapsed this summer.

“I don’t want to put a timeline on this,” said Cecilia Rouse, chair of the White House Council of Economic Advisers. “We won’t feel totally normal until we have it, whether we want to call it herd immunity or a larger fraction or percentage of the American population is vaccinated.”

“As we conquer the virus,” she said, “we will return to normalcy”.

The economy’s rebound this year has been stronger than almost everyone predicted last winter, due to the first wave of vaccinations and the momentum given by Mr. Biden. Gross domestic product has returned to its pre-pandemic level last spring, and retail sales have soared well beyond their pre-Covid trajectory.

Yet the recovery remains uneven and shaken by a rare set of economic crosswinds. In some sectors, consumer demand remains depressed. In others, expenses are high but supply constraints – whether for materials or workers or both – drive up prices.

For example, the construction sector has recovered most of the jobs lost at the start of the pandemic, and other industries, such as warehousing, have in fact grown. But restaurants and hotels still employ millions fewer people than in February 2020. The result: There are more college graduates working in the United States today than at the start of the pandemic, but five million fewer workers without a university degree.

To compound the problem, employment in larger cities fell more than in smaller towns and rural areas, and it rebounded more slowly. Employment among workers without a university degree living in the largest cities has fallen by more than 5% since February 2020, compared to around 2% for workers without a university degree in other parts of the country.

Even though millions of people remain unemployed, businesses across the country are struggling to fill record numbers of job openings. Many companies blamed the increase in unemployment benefits on the labor shortage. If they’re right, a flood of workers should return to the workforce when benefits end after Labor Day. But recent research has suggested that benefits play at most a small role in keeping people out of the workforce. This suggests that other factors are holding back potential workers, such as health issues and childcare issues, which might not subside quickly.

Data on Michigan sentiment and the fading benefits of the stimulus suggests consumers may be prompted to cut spending further. But other data shows Americans increased their savings during the pandemic, in part by racking up previous rounds of government support, and could tap into those funds to maintain spending for months to come.

Administration officials hope to boost consumer and worker morale by pushing Congress to pass both halves of Mr Biden’s long-term economic agenda: a bipartisan infrastructure bill and a spending bill more importantly that could extend tax credits to parents, subsidize child care and reduce prescription drug costs, among other initiatives.

“Our hope is that the new normal emerging from this crisis is not simply a return to the status quo and the economy, which was not working for most working families,” Deese said.

The virus remains the biggest wildcard for prospects. There is little evidence in government data that the spread of the Delta variant has suppressed spending in retail stores. But air travel, as measured by the number of people screened at airport security checkpoints, has declined in recent days after returning to around 80% of its level in the same week in 2019.

Restaurant reservations on OpenTable, which were almost back to normal in June and July, have fallen to 10% below their pre-pandemic level. Data from Homebase, which provides time management software for small businesses, shows a sharp drop in the number of hours worked in restaurants and entertainment venues.

The variant is already casting a shadow over the new school year, with some schools, including a college in Fredericksburg, Va., Temporarily reverting to virtual learning amid new outbreaks.

Urban city centers, once hopeful of a rebound in downward activity, are bracing for prolonged delays in the return of white-collar workers to their offices.

“Our No.1 job is to get office workers back – it’s the lifeblood of downtown,” said Paul Levy, president and CEO of Center City District, a local business development group in Philadelphia. .

Mr. Levy’s group estimates that 30 percent of downtown office workers have so far returned to Philadelphia. He expected that figure to reach 75 to 80 percent after Labor Day and had built an ad campaign around the idea that the drop would mark a major milestone in getting back to normalcy. But now large employers like Comcast have delayed their return dates, worrying business owners.

Yehuda Sichel signed a lease for Huda, his gourmet sandwich shop in Philadelphia, on February 29, 2020 – two weeks before the pandemic sent nearly all of its potential clientele home indefinitely.

He made it through the pandemic winter with take out, holiday meal kits, and a little creativity. A plate of baby back ribs on a snowy day when many other restaurants were closed helped him make his paycheck during a particularly dark time. Last spring, business started to improve and Mr. Sichel invested in new equipment and a new kitchen floor in hopes of increasing business once the office workers returned. Now he doubts to see one.

“September was supposed to be this huge boom,” he said. “Now September is going to be fine. I’m sure we’ll see a little bump, but not the doubling of business I was hoping for. “

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