US economy rises from the dead

A visitor takes a selfie at Universal Studios theme park in Florida on the first day of reopening on Friday. Picture: AFP

Friday’s surprisingly upbeat jobs report for May was no doubt cheered by most Americans, but not by all. Democrats Nancy Pelosi and Chuck Schumer seemed glum, as they ignored the progress and demanded still more federal money. What do they have against good economic news?

The resilient American economy surprised nearly everyone by creating 2.5 million new jobs in the month, while the jobless rate fell to 13.3 per cent from 14.7 per cent in April. The number of unemployed fell 2.1 million to a still awful 21 million, but many good economists had predicted a jobless rate of more than 20 per cent. The numbers look even better given that the jobs survey was taken mid-month, which was before the economic lockdowns eased in much of the country.

No doubt there’s statistical noise in the survey given the tumult of the lockdown and the uncertainty of when businesses might reopen. Revisions, perhaps large, are likely. But a few judgments seem fair from the data.

One is that the economy has hit bottom and is on the way back to growth. The plunge has been the fastest and deepest on record, which is what happens when politicians fear a health catastrophe and order everyone indoors. But the recovery should gain speed in June as more of the country reopens and the private economy rises from the near-dead.

Hints of the labour market recovery showed up this week in initial jobless claims for the week that ended on May 23. They fell sharply in Washington state (90,683), Florida (49,993), California (41,109) and even New York (34,875), where New York City is still locked down. Construction has rebounded in Florida, and tourism is beginning to show signs of life.

The federal Paycheque Protection Program also seems to have succeeded in its main goal of getting small businesses to retain workers. It should work given its roughly $US659bn ($946bn) cost. Congress passed a useful PPP fix this week that will let businesses take up to six months to spend the loan money, instead of two, and spend more of the loan on costs other than payroll.

Tens of thousands of businesses will never reopen, alas, but service businesses are starting to rehire with job gains in retail (368,000), leisure and hospitality (1.2 million) and healthcare (312,000, including 245,000 in dentistry). The misguided decision to shut down elective surgery in most of the country is slowly reversing, so hospitals can get back to non-COVID-19 business.

In a sour note, the May report underscores how the lockdown has hurt African-Americans and low-skilled workers the most. The jobless rate fell for whites and Hispanics but stayed 16.8 per cent for blacks. A year ago the black rate was a record low 6.2 per cent. Workers with lower skills need a fast-growing economy to get the wage gains that gentry liberals take for granted.

Still, the labour market has begun to heal, but you wouldn’t know it from Pelosi and Schumer. The Speaker issued a statement that “nearly 600,000 critical government employees have lost their jobs in the last month and hundreds of thousands more frontline workers are at risk of being laid off, including teachers, first responders and hospital, nursing care, sanitation, transit, food, postal and other essential workers”.

Her solution? Pass her $US3 trillion Heroes Act. Schumer offered a similar dirge and prescription. But another spending binge might not be needed. The states won’t take as large a revenue hit as they fear if the economy and job market recover more rapidly. They can also borrow from the Federal Reserve. Consumers have bulked up their savings and have cash to spend again as they return to work.

The worst intervention would be for congress to extend its enhanced unemployment benefit of $US600 a week that is giving workers an incentive not to return to work.

The Congressional Budget Office this week said five of every six workers would receive more in benefits than they would in wages, and employment later this year would be lower, if the $US600 benefit is extended into 2021.

The biggest challenge will be restoring the animal spirits of risk-taking and investment given the uncertainty about a second wave of COVID-19 in the northern autumn and winter. Start by doing no harm. A second shutdown won’t be needed if the political class better prepares this time by fortifying the healthcare system. A vaccine may save the day, but better to prepare as if it won’t.

Enhanced jobless benefits expire on July 31, and businesses have new flexibility on how to use PPP cash. The Fed has lending firepower in reserve.

The US economy is a dynamic engine that left to its own devices will grow, as consenting adults commit multiple acts of commerce. Let’s give it a chance to recover before congress spends another trillion that sooner or later will come out of the private economy.

The Wall Street Journal