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Biden Touts Economic Recovery, But Major Concerns Linger
WASHINGTON - President Joe Biden on Monday took a swipe at political opponents, including former President Donald Trump, by touting the reinvigorated U.S. economy, which has been recovering rapidly during his first six months in office.
But some economists worry that the administration’s aggressive efforts to spur economic growth could lead to a punishing recession next year.
Speaking at the White House on Monday morning, Biden reminded listeners of the predictions of economic disaster that his detractors had insisted would follow his election as president.
Without naming him, Biden referred to his predecessor by quoting his prediction that if Biden became president, the country would experience “a depression the likes of which we have never seen.”
FILE - A hiring sign is on display at a retail store in Buffalo Grove, Ill., June 24, 2021.
3 million new jobs
Pointing out that the current reality of the American economy is quite different, Biden said, “We’ve gone from 60,000 jobs per month to 60,000 jobs every three days — more than 600,000 jobs per month since I took office. More than 3 million new jobs all told. That’s the fastest growth, I’m told, at this point in any administration’s history.”
Additionally, he pointed out that the U.S. economy’s growth rate was currently higher than it had been in nearly 40 years.
“And now, the forecasters have doubled their projections for growth this year in the economy to 7 percent or higher,” he said. “In fact, the U.S. is the only developed country in the world where growth projections today are stronger than they were before the pandemic hit.”
FILE _ Desmond Lachman, Resident Fellow at the American Enterprise Institute for Public Policy Research, speaks at the Council on Foreign Relations World Economic Update in New York, March 16, 2011.
Some credit justified
Even observers who don’t necessarily agree with Biden on economic policy agree that the president can take a substantial share of credit for the economy’s rapid rebound.
“I think he can justifiably take credit for having got an effective vaccination program going,” said Desmond Lachman, a senior fellow at the conservative-leaning American Enterprise Institute. “That means that people can go back to work and that all those industries that got pretty hard hit by the pandemic can spring back.”
But when it comes to economic policy, it is unclear how much of the current rebound is due to the administration’s action and how much is a natural combination of delayed consumption by consumers and businesses across the country all ramping up at the same time to get back to some semblance of normal.
Right place, right time
“There’s no question that Biden, and the administration more broadly, are the beneficiaries of being in the right place at the right time,” said David Wilcox, a senior fellow at the Peterson Institute for International Economics.
However, Wilcox said, “Biden and his administration have done some things that surely have helped propel the speed of economic recovery. The aggressive efforts to distribute the vaccine surely rank number one on that list. More broadly, the reinforcement of a science-based approach to public health, and the importance of respecting public health guidance must have made a difference at the margin.
“Then, lastly, a huge factor to take into account is the enactment of the American recovery plan,” he added, “a historically large injection of stimulus — ultimately it will total $1.9 trillion — some of which came online very quickly.”
Risks of overheating
It’s that last factor, the stimulus, that has Lachman and many conservative commentators worried.
Even before Biden took office, the government had spent nearly $4 trillion in various actions related to the pandemic, including direct grants, the Paycheck Protection Program, and additional funding to help agencies respond to increased demand for services related to the pandemic response. In March, that number jumped to nearly $6 trillion, when Biden signed the $1.9 trillion American Rescue Plan.
All this comes on top of the Federal Reserve’s promise to keep interest rates low, almost certainly well into next year.
FILE - Lawrence Summers, Former United States Treasury Secretary, delivers his speech during a panel at a G-20 Economy and Finance ministers and Central bank governors' meeting in Venice, Italy, July 9, 2021.
More spending proposed
In his remarks Monday, Biden said that it is essential to a continued recovery that Congress pass another major initiative, this one related to infrastructure, which would commit the government to another $1 trillion or more in spending.
“He’s really supercharging the economy,” said Lachman of the American Enterprise Institute, “and he’s doing it at the same time that the Fed has its pedal to the metal.”
Like a number of economists, including former Clinton administration Treasury Secretary Lawrence Summers, Lachman says he worries that excessive cash pouring into the economy will create an upward spiral of wage and price spikes that will force the Federal Reserve to raise interest rates sharply, provoking another recession.
“It might look all very good in 2021, but the question is, what will it look like in 2022?” Lachman said. “We could very well run into a hard economic landing.”
On July 19, 2021, the Los Angeles Dodgers have an onsite COVID-19 clinic offering free tickets for each vaccine taken before the game against the San Francisco Giants at Dodger Stadium.
The delta variant
The wildcard in all these considerations is the future path of the pandemic. Cases are rising sharply in the United States, albeit from low levels. If the more infectious delta variant of the disease continues to expand, particularly in unvaccinated populations, or if a vaccine-resistant variant arises, much of the progress the country has made could be reversed.
As if to warn the president of the dangers of economic hubris, the stock market on Monday experienced its largest single-day decline in two months, with the Dow Jones Industrial Average shedding 726 points, or about 2% of its value. Analysts attributed the dramatic decline to public concern about the rising COVID-19 case numbers.
Most of that decline was recovered on Tuesday afternoon, but one message was clear: When it comes to the economic recovery, nobody really knows whether the administration or the virus will have the last word.
Australia’s economic recovery under threat
SYDNEY: Australia’s economy will take a hit this quarter from renewed lockdown restrictions to try and contain rising coronavirus cases, according to a Reuters poll of economists who said a snail-paced vaccination rollout was the top risk to growth.
After recording an unprecedented stretch of growth since 1991, the economy contracted 2.4% last year amidst the Covid-19 pandemic as borders and businesses were closed, but monetary and fiscal support has underpinned the A$2 trillion (RM6.19 trillion) economy.
A rise in new Covid-19 variants in Sydney, Australia’s most populous city, and in several states, is threatening an economic recovery in the coming quarters.
While only three economists in the July 7-20 poll expected a contraction this quarter, the consensus pointed to a sharp downgrade.
Growth is now forecast at 0.1% on a quarter-on-quarter basis compared with 0.9% predicted in an April poll.
If realised, it would be the weakest growth since the Australian economy emerged from recession a year ago. Forecasts ranged between -0.6% and 0.8%.
“Sydney’s lockdown could see third-quarter GDP growth turn negative if the lockdown goes for six to eight weeks,” said Tapas Strickland, an economist at National Australia Bank.
“A worst-case protracted lockdown… means a possible hit of US$4.2bil-US$5.6bil (RM17.8bil-RM23.7bil) on GDP.
“Such a hit is probably enough to see third-quarter GDP growth dip temporarily into negative, with the drag approaching one percentage point off activity and producing a third-quarter GDP print of -0.1% to -0.2%.”
The economy was expected to grow 1.1% next quarter, compared with 0.8% in the last poll.
Growth is forecast at 4.9% annually this year, the fastest pace in more than two decades. But it is expected to ease to 3.3% next year and then to 2.9% in 2023.
“Our expectation is that the hit to the economy will be somewhat smaller, given that economic activity has become more resilient to lockdowns and activity should rebound quickly once restrictions ease,” said David Plank, head of Australian economics at ANZ.
When asked what was the biggest risk to the economy this year, 10 of 14 economists said a slow vaccination rate. The remaining four flagged a spread of new Covid-19 variants.
The nation was widely lauded for its success in curtailing the spread of Covid-19 and limiting deaths, which lagged well behind its peers, but only 11% of Australians have been fully vaccinated. — Reuters