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The economy is booming, but far from normal – a challenge for Biden

The American economy has grown the fastest in a quarter of a century, but it remains far from normal as some workers and small business owners face increasingly difficult times while others thrive. This divergence presents President Biden with a challenge.

A summer that many business owners and consumers had hoped would bring a return to pre-pandemic activity has sparked waves of disappointment in key areas. Restaurants have few staff and long waiting times. The prices of groceries, gasoline and many services have skyrocketed. Buyers struggle to find used cars. Retailers are struggling to hire new employees. Beach towns are overcrowded with tourists, but office towers in large cities remain ghost towns on weekdays, with the promised return of workers being delayed by a resurgent coronavirus.

The University of Michigan’s Consumer Sentiment Index suffered one of the largest monthly losses in 40 years in August, driven by the rapidly expanding delta variant and high inflation. Survey’s chief economist Richard Curtin said the decline also reflected “an emotional response out of disappointed hopes that the pandemic may end soon and life may return to normal”.

Mr Biden and his advisors are confident that many of these issues will improve in the fall. They expect the hiring process to continue or even accelerate at a rapid pace, increasing workers’ paychecks and boosting consumer spending. They remain confident that a revitalized job market will replace the fading momentum from the President’s $ 1.9 trillion Economic Aid Act signed earlier this year, and that the recent wave of the virus will not dampen growth significantly.

On Friday, they released new projections forecasting growth this year to reach 7.1 percent adjusted for inflation, the highest rate since 1983.

“Our perspective is to look at an economy that is growing at historic speeds,” said Brian Deese, director of Mr. Biden’s National Economic Council, in an interview.

But there is growing evidence that the coming months of recovery could be more hesitant and chaotic than administrators predict, potentially putting millions of abandoned workers at risk as their government support runs out.

Private forecasters have scaled back growth expectations for the end of the year, citing the burden of spending due to the spread of the delta variant and the nationwide expiry of increased unemployment benefits next Monday. New research suggests that the end of these benefits may not drive Americans back into the workforce right away, filling the record number of job vacancies across the country.

“People will be surprised at how much the economy will slow down over the next year as the economic boost wears off,” said Jim O’Sullivan, chief macro strategist for TD Securities in the US.

Administrative officials recognize some potential hurdles. Some metropolitan city centers may never return to their pre-pandemic realities, and the economy will not be completely “normal” until the virus is completely under control. They stress that increasing the country’s vaccination rate is the most important economic policy the government can pursue to accelerate growth and boost consumer confidence, which plummeted this summer.

Understand the Infrastructure Act

    • A trillion dollar package passed. The Senate passed a comprehensive bipartisan infrastructure package on Aug. 10 that concludes weeks of intense negotiations and debates on the largest federal investment in the nation’s aging public construction system in more than a decade.
    • The final vote. The final balance in the Senate was 69 votes to 30 against. Legislation, yet to be passed in the House of Representatives, would touch almost every facet of the American economy and strengthen the nation’s response to planet warming.
    • Main Spending Areas. Overall, the bipartisan plan focuses on spending on transportation, utilities, and removing pollution.
    • transport. About $ 110 billion would be used on roads, bridges, and other transportation projects; $ 25 billion for airports; and $ 66 billion for the railroad, giving Amtrak most of the funding it has received since it was founded in 1971.
    • Utilities. The Senators have also raised $ 65 billion to connect hard-to-reach rural communities to high-speed internet and attract low-income urban dwellers who can’t afford it, and $ 8 billion for western water infrastructure.
    • Cleaning up pollution: Approximately $ 21 billion would be used to rehabilitate abandoned wells and mines, as well as Superfund sites.

“I don’t want to set a schedule here,” said Cecilia Rouse, Chair of the White House Economic Adviser. “We won’t feel completely normal until we call it herd immunity or when a greater part or percentage of the American population is vaccinated.”

“If we defeat the virus,” she said, “we will return to normal.”

The economic recovery this year was stronger than almost everyone predicted last winter, due to the first wave of vaccinations and the boost from Mr Biden’s stimulus package. Gross domestic product returned to pre-pandemic levels last spring, and retail sales rose well beyond their pre-Covid path.

Updated

Aug. 24, 2021, 4:52 p.m. ET

However, the recovery remains mixed and is shaken by a rare series of economic cross winds. In some sectors, consumer demand remains depressed. In other countries, spending is high, but supply shortages – be it for materials or labor or both – drive prices up.

For example, the construction sector has regained most of the jobs lost at the start of the pandemic, and other industries such as warehousing have even grown. But restaurants and hotels still employ millions fewer people than they did in February 2020. The result: There are more university graduates in the US today than at the beginning of the pandemic, but five million fewer workers without a university degree.

To make matters worse, employment has declined further in the largest cities than in smaller towns and rural areas, and has recovered more slowly. Employment of non-college graduates living in major cities has declined by more than 5 percent since February 2020, compared to about 2 percent for non-college workers in other parts of the country.

While millions of people remain unemployed, companies across the country are struggling to fill a record number of job vacancies. Many companies blame expanded unemployment benefits for the labor shortage. If they are right, a flood of workers should return to the labor market when benefits end after Labor. However, recent research has shown that benefits play at most a minor role in keeping people out of work. This suggests that other factors are holding potential workers back, such as health concerns and childcare issues, which may not subside quickly.

The Michigan sentiment data and the waning of the economic benefits suggest that consumers may be willing to continue pulling back on their spending. However, other data shows that Americans increased their savings during the pandemic, in part by banking previous rounds of government assistance, and could use those funds to keep spending going for months to come.

Administrative officials hope to empower consumers and workers by urging Congress to pass the two halves of Mr Biden’s longer-term economic agenda: a bipartisan infrastructure bill and a larger spending bill that could expand expanded tax credits for parents, subsidize childcare, and reduce prescription costs Medication, among other things.

“Our hope is that the new normal from this crisis is not simply a return to the status quo and the economy that didn’t work for most working-class families,” Deese said.

The virus remains the biggest wildcard for the outlook. There is little evidence in government data that the proliferation of the delta variant has depressed retail spending. But air traffic, as measured by the number of people screened at airport security checkpoints, has declined in recent days, having returned to around 80 percent in the same week in 2019.

Restaurant bookings on OpenTable, which almost returned to normal in June and July, are back 10 percent below their pre-pandemic level. Data from Homebase, which provides time management software to small businesses, shows a sharp drop in working hours in restaurants and entertainment venues.

The variant is already casting a shadow over the new school year, as some schools, including a middle school in Fredericksburg, Virginia, temporarily revert to virtual learning in response to new outbreaks.

Urban city centers, once hoping for a decline in activity, are preparing for lengthy delays in the return of employees to their offices.

“Our # 1 job is to get office workers back – that’s the engine of downtown,” said Paul Levy, president and general manager of Center City District, a local Philadelphia business development group.

Mr. Levy’s group estimates that 30 percent of downtown office workers have returned to Philadelphia so far. It had expected that number would hit 75 to 80 percent after Labor Day and had built an advertising campaign around the idea that fall would mark a milestone in the return to normal. But now, big employers like Comcast have postponed their return dates, worrying business owners.

Yehuda Sichel signed a lease for Huda, its gourmet sandwich shop in Philadelphia, on February 29, 2020 – two weeks before the pandemic sent virtually all of its potential customer base home indefinitely.

He got through the pandemic winter with takeaway orders, holiday meals and a little creativity. A short rib special on a snowy day when many other restaurants were closed helped him do payroll during an especially dark time. Business began to improve last spring and Mr. Sichel invested in new appliances and a new kitchen floor in the hope that business would pick up after the office workers returned. Now he doubts he’ll see one.

“September should be this huge boom,” he said. “Now September will be good. I’m sure we’ll see a small bump, but not the doubling in business that I was hoping for. “

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