Friday’s unemployment report all but certainly arrives too late to help President Donald Trump’s re-election bid much — despite the fact that the economy added 661,000 jobs in September while the unemployment rate fell to 7.9 percent. Election forecasting models like the one from Yale University’s Ray Fair typically rely on data up until the second quarter of election day, reasoning that by October perceptions of the economy are too strongly held to change much.
But that said, the facts of the economy are increasingly looking pretty good for the next president, even if — or perhaps because — some of this week’s headlines contain notes of panic.
Think of it as a kind of inverse Goldilocks Economy — just cold enough to get panicked Republicans to finally do something about short-term stimulus as the economy is showing signs of a new slowdown, as the comeback from the midyear collapse peters out (specifically, a weak report on personal income growth, persistently high unemployment insurance claims, and big layoff announcements at Walt Disney Co. and both United and American Airlines), and still cold enough to make Trump lose. After all, that 661,000 job gain is less than half of August’s, and below expectations of 859,000 jobs. With another 4.5 million people not counted as jobless because the Labor Department says they are not looking for work due to Covid-19, it’s a double-digit unemployment economy.
But it’s also an economy warm enough to respond nicely to stimulus, both the short-term corona fix that seems increasingly likely to happen and the big one a President Joe Biden and a Democratic Congress would do next year — so the next economic expansion can be as robust as we wish the slow snap back from the 2008 financial crisis had been. In other words, the jobs report isn’t what we want — but it’s good enough that we can see the destination from here.
First, the numbers.
The 7.9 percent unemployment rate means Trump heads into in-person voting season with unemployment still 68 percent above the 4.7 percent he inherited. His argument that he had the greatest economy in history until the coronavirus hit is just palaver: Presidential terms last four years, as Trump himself noted in defending his nomination of Amy Coney Barrett to the Supreme Court weeks before an election he’s highly likely to lose. He’s down 3.9 million jobs since he took over, when unemployment was 4.7 percent. That hasn’t happened since Herbert Hoover. Biden served as vice president in an administration that cut unemployment in half; Trump tripled it before it began to reverse itself.
It’s just math.
That said, there are some very decent trends. With interest rates low and housing sales high, construction employment rose by 26,000. Assuming the Supreme Court doesn’t invalidate Obamacare after the election, the political threat to healthcare providers is much smaller, one reason that sector added 53,000 jobs. Manufacturing rose 66,000.
But restaurants and hotels continue to struggle, with hotel occupancy rates nationwide around 49 percent (per industry consultants STR) and OpenTable saying restaurants are doing anywhere from a third less business than a year ago to half as much, depending on the night. Restaurants and bars added 200,000 jobs in September, but are still down 2.3 million since February, just as the broader economy has lost almost 11 million.
The signs of weakness as the corona-fighting stimulus from this spring fades are why Trump’s Treasury Secretary Steve Mnuchin is back in negotiations with House Democrats about the next stimulus, with bids beginning at the GOP’s $1.6 trillion plan. That’ll surely end up targeting state and local governments that have corona-related fiscal problems and aiming more money at households to prop up consumer spending (including travel and restaurants).
That alone can explain the stock market’s strength this week — that and Trump’s implosion at the first presidential debate, which seem to have cost him about four points in polls that already showed him losing by about seven to nine percentage points. Any concrete sign that a walking political risk is leaving the stage is good for stocks. (The news Friday morning that the president has coronavirus is not part of this calculation).
But the better part comes next year. Because Biden’s plans are looking very stimulative indeed, especially if he gets the Democratic Senate he needs to do big things.
Biden’s plan would create almost 9 million more jobs than expected Republican policies, says a new report by economic consulting group Moody’s Analytics. The centerpiece of it is infrastructure spending, including a $1.7 trillion push on climate change that includes a nationwide network of charging stations for electric vehicles. Then there are big plans for child care expansion, free public college (whose benefits we’ll experience for years and years) and so on.
One of the better ironies of following Trump, notorious for having “Infrastructure Week” media pushes derailed by the Scandal of the Week, would be trouncing his economic performance by doing infrastructure spending he promised but never delivered.
Yes, the plan is funded both by tax increases and the continued growth of the federal deficit, which Moody’s says is affordable because interest rates are so low, and will stay low because the economy has too much unused capacity to spark inflation soon.
Other Wall Street economists, including the team at Goldman Sachs, also think Biden’s plan will work, and the US economy is ready for a different approach and to hear a different voice from the top.
But the election isn’t about the economy any more. It’s about coronavirus, of which this year’s economic collapse is only a part. The president’s own diagnosis only confirms that, and drives home his fecklessness.