contractions
One of the more puzzling aspects of the U.S. economy is that employers have been on a near-constant hiring spree since President Biden took office — and analysts see no signs the trend will reverse any time soon.
The paradox is that there is no guarantee that Biden will stay in the White House beyond November due to the jobs boom, completely throwing the saying “It's the economy, stupid” that wins elections into disarray.
For 39 months, employers have added jobs despite many predictions that the United States is headed for a recession. They also faced a long list of challenges that hampered many of their American counterparts, including high inflation and interest rates; wars in Ukraine and Gaza that have driven up energy prices; and shipping unrest in the Panama Canal, the Red Sea and now the Port of Baltimore.
March was another blockbuster for jobs. The latest data released on Friday far exceeded analysts' expectations: employers added 303,000 jobs. In total, more than 2.8 million new hires were made in the last twelve months – and economists expect the upward trend to continue. “We believe there is still room for growth next year,” Jeremy Schwartz, a senior U.S. economist at Nomura, told DealBook.
It is less certain whether Biden can capitalize on this in his race with Donald Trump. The White House called the latest numbers a “milestone in America's comeback” and held them up as evidence that the Inflation Reduction Act and the CHIPS Act, two key pieces of Biden's agenda, were boosting the economy.
But the red-hot job market could just as easily exacerbate two of Biden's big vulnerabilities: inflation, in which high wages lead to a surge in spending that drives up prices for everything from gas to concert tickets; and longer-term higher interest rates to counteract these price increases. A growing number of Wall Street analysts predicted that the Fed would be in no rush to cut borrowing costs after yesterday's report.
(As of yesterday's close, traders had withdrawn their forecasts for the Fed's first rate cut in July rather than June.)
Biden's poll numbers are close to those of many one-term presidents. Voters say they disapprove of his handling of the economy, even though he is a world beater by many indicators. “When it comes to the economy, sentiment conflicts with facts and sentiment wins,” Greg Ip of the Wall Street Journal wrote this week.
Some doubters are starting to change their minds. Yesterday's jobs report “challenges our poor case for the economy,” Thomas Simons, an economist at Jefferies who predicted the United States would fall into recession this year, wrote in an investor note. Mohamed El-Erian, an economist and consultant at Allianz, experienced a similar conversion. He told Bloomberg TV that the latest jobs numbers “confirm U.S. economic exceptionalism.”
There is still a lot of bad economic news. Americans (young and old) are worried about their retirement savings. They have also accumulated credit card debt and their savings are dwindling.
But the job market remains a bright spot. Wages are rising, as is labor force participation, which rose from 62.5 percent to 62.7 percent as 469,000 people entered the workforce last month. The post-pandemic economic recovery has led to broad gains across racial and income disparities, Schwartz said.
Nomura tracks a specific metric to measure an incumbent's prospects: the “misery index.” It's a simple calculation that adds the inflation rate to the unemployment rate. Presidents with higher misery indexes have tended to lose their re-election bids.
Biden's distress rating remained relatively high throughout his presidency. But that number has fallen in line with the inflation rate, and the latest jobs report is expected to bring it down even further.
The question is whether Biden's misery index will fall far enough to bring him into the ranks of Ronald Reagan and Barack Obama, who enjoyed late economic recoveries in their first terms, to win again – or whether he will be closer to President George HW Will Bush stick around, having lost Round 2 in 1992?
In other words, will voters give Biden credit for jobs or blame him for inflation?
IN CASE YOU MISSED IT
Bob Iger and Disney won a proxy fight against Nelson Peltz. The entertainment giant's shareholders rejected the financier's efforts to gain board seats for the second time in two years. The victory ends a costly battle that was a distraction for the company as it faced major challenges including remaking ESPN, spending billions to modernize theme parks and shaping the future of Hulu.
Tesla sales Lot. Elon Musk's electric vehicle company reported its first quarterly year-over-year sales decline since 2020 and warned of “significantly lower” growth this year. Tesla's results reflected an overall slowdown in the electric vehicle market, but some prominent investors also blamed Musk's “toxic behavior” for the damage to the brand. Tesla shares have fallen more than 30 percent this year.
Endeavor plans to go private in a deal with Silver Lake. Ari Emanuel's company, which owns talent agencies IMG and WME, will cease operations as a publicly traded company three years after going public. Silver Lake will buy the shares of Endeavor it doesn't already own in a deal that values Endeavor at about $13 billion. The company was unable to realize its ambitious plans to develop into a media conglomerate that not only produced content but also represented top stars such as Dwayne Johnson and Oprah Winfrey.
Microsoft is separating Teams from Office as regulatory scrutiny tightens. The tech giant will separate its video and document collaboration program from its business software suite after rivals such as Slack and Zoom complained that bundling those programs was anti-competitive. American and European regulators have stepped up their investigations into Microsoft following a series of deals in recent months, including the company's investments in AI startups such as OpenAI and Mistral.
On our radar: “Face-Off: The USA vs. China”
The United States and China have tried to stabilize their relations in recent months, but underlying tensions between the world's two largest economies will not end anytime soon. Treasury Secretary Janet Yellen criticized Beijing on a trip to China in recent days, accusing it of “coercive measures against American companies” and warning that its state-backed manufacturers were distorting global markets.
The sharp rhetoric comes just days after a parade of business leaders met Chinese President Xi Jinping – a sign that they want to remain engaged there despite the obvious challenges.
“Face-Off: The U.S. vs. China” is an eight-part podcast beginning Tuesday that attempts to explain the relationship and why the dangers are so high. The series is hosted by Jane Perlez, a former New York Times Beijing bureau chief who is now studying at Harvard's Kennedy School, and stars leading historian Rana Mitter. Perlez told DealBook that the goal is to give listeners “a rational approach” to understanding one of America’s greatest challenges.
Perlez and Mitter discuss everything from Apple's remarkable rise in China and the future of Taiwan to Chinese espionage and the personal relationship between Biden and Xi, interviewing diplomats, spies, technology and military experts – even Yo-Yo Ma.
Comments are closed.