THE LATEST economic news has been full of surprises — mostly unpleasant. The April jobs report, released Friday, showed that the U.S. economy added only 266,000 positions last month, about a quarter of what had been expected. On Wednesday came the equally jarring data point that consumer prices were up 4.2 percent relative to April 2020, also worse than the consensus forecast. Critics of the Biden administration portray the data as evidence that the president’s plans, and those of the Federal Reserve, for greater economic stimulus are already failing. We say: Don’t panic.
A reasonable case can be made — eminent economists such as Lawrence H. Summers have made it — that President Biden’s $1.9 trillion American Rescue Plan was too large and too late, putting an already recovering economy at risk of overheating. But the new inflation numbers don’t yet prove it. First, the price increases they reflect are relative to an anomalously low baseline: April 2020, when the U.S. economy was essentially paralyzed. Second, the headline consumer price index includes volatile sectors such as food and energy. Without those, the rise in “core” inflation was tamer. As for the labor market, in which the number of job openings, 8.2 million, now roughly equals the job shortfall relative to pre-pandemic times, some workers are clearly staying on the sidelines because $300 federal unemployment insurance supplements deter them from seeking service-sector positions. Mr. Biden was wrong to dismiss that concern in remarks Tuesday; yet he was surely right to note that other issues, such as a lack of child care and lingering fear of contracting the coronavirus, are also depressing labor supply.
U.S. workers and employers received an epic shock from covid-19, the effects of which were psychological as well as financial, and which are still being felt. Well-described by Heather Long in a May 7 article in The Post, the labor market is experiencing “reallocation friction” as employers produce new and different jobs and workers take time to decide where and how they fit in.
Fortunately, by September vaccination rates will be up, extra unemployment benefits will expire and schools will reopen, likely rendering transitory the dislocations that are showing up in current data. The same is true for clearly temporary issues such as the closure of a key fuel pipeline and a semiconductor shortage hampering the auto industry. In the meantime, it’s not altogether bad that many employers must raise wages to induce people to take jobs; higher average hourly pay was a silver lining of the otherwise dismal April labor market report.
The data are a reminder that the pandemic jolted the U.S. and global economies in ways that even experts do not fully understand. Damage and disruption on the supply side of the economy are central to the problem, but most policy instruments, both fiscal and monetary, work by boosting demand. This is no time for anyone to cling dogmatically to prior beliefs. That goes for the administration’s critics but also for the administration itself, and for the Fed. Robust growth coupled with tolerable inflation remains the likeliest scenario for 2021, and a month or two of bad data would not suggest otherwise. If the data changes, however, policymakers must be ready to change, too.
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