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Americans may not believe it, but on paper the US economy is doing pretty well. So good that we are even exceeding the forecasts that were made before the pandemic began.
The nation's employers added an additional 199,000 jobs in November, the U.S. Bureau of Labor Statistics reported Friday. This is slightly better than Wall Street expectations. More significantly, total employment is now 2 million jobs higher than was already expected in the January 2020 projections from the nonpartisan Congressional Budget Office:
That's pretty amazing. When the pandemic broke out, many economists feared it would leave lasting scars. After all, after the Great Recession of 2007-2009, it took a long time for the labor market to recover and for laid-off workers to regain their footing. Yet somehow, after a once-in-a-century crisis that resulted in record job losses, American workers haven't simply made up all the ground they lost. They are doing better than ever, better than anyone could have imagined before this traumatic global shock.
The labor market also exceeded pre-pandemic expectations in other metrics. For example, the CBO had expected an unemployment rate of 4.2 percent at the end of 2023. Instead, at 3.7 percent, it is close to its lowest level in half a century. In the last two years it has been at or below 4 percent.
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Accordingly, the share of American adults who are actively employed (that is, either working or looking for work) is slightly higher than expected by the Congressional Budget Office.
The job market isn't the only area where we exceeded Before Times forecasts. The overall size of the economy, as measured by gross domestic product, is larger than currently expected, as Jason Furman, an economics professor at Harvard University and a former Obama administration official, has pointed out:
And the Congressional Budget Office isn't the only one suggesting where we would be now. According to the International Monetary Fund, U.S. gross domestic product, adjusted for inflation, is higher today than expected at the start of 2020. The IMF ran these calculations for countries around the world and found that the United States was an outlier, exceeding the organization's predictions from before the Covid-19 crisis:
Why have respected professional forecasters underestimated the strength of the economy? And how is it that jobs and GDP are doing better than expected, even though inflation has been unmistakably worse?
To some extent, all of these things are related.
The meteorologists obviously did not predict the pandemic. Nor did they expect the government's unprecedentedly huge response to the coronavirus.
As the public health crisis hit and displaced millions of American workers, policymakers acted with a speed and purpose not shown in previous downturns. They implemented unusually generous fiscal and monetary stimulus – unusually generous both compared to previous recession responses in the United States and to responses in other countries. To be clear, these decisions to aggressively stimulate the economy were made during both the Trump and Biden administrations.
Such stimulus measures helped get people back to work sooner and prevented the long, painful road back to normality that followed the Great Recession. Hence faster job growth.
They also massively increased consumer demand at a time when the economy's productive capacity (that is, the ability of companies to make and deliver the things their customers want) could not keep up. Employers faced shortages of all kinds—products, materials, labor—and eager consumers drove up prices on whatever stocks companies actually had on hand. Hence faster price growth.
More than three years after the start of the pandemic, these effects are finally easing. Price growth has cooled sharply. While hiring numbers are no longer at the staggering numbers we once saw, they are still stable. For example, if you had asked me in January 2020 what Americans would think about an economy with an “additional” 2 million jobs, unemployment at less than 4 percent, and inflation at just over 3 percent, I would probably have gotten that from the public expected pretty satisfied.
That would of course have been the wrong decision. People are still angry about the additional price increases they have already experienced so far and unimpressed by all the additional job growth. Maybe voters just don't like surprises. Or perhaps it's human nature for people to see better jobs or pay as something they've earned while being subjected to painful price increases – even though both are, in a sense, two sides of the same coin.
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