The Memo: Economy’s speed-bumps could worsen Biden’s troubles

The path of the U.S. economic recovery is looking increasingly tenuous — and that could further complicate life for President Biden, whose approval ratings have sagged in recent weeks.

The August jobs report came in far below expectations heading into the holiday weekend. Around 9 million Americans also lost unemployment benefits this week as COVID-19–related provisions expired. And looming over everything else is the delta variant of the coronavirus, which has dashed hopes for a sharp, linear recovery.

One more sign of trouble came on Monday, when Goldman Sachs economists cut their growth forecast for the U.S. economy. The Goldman experts now expect growth of 5.7 percent for 2021 as a whole, down from the 6 percent they foresaw only weeks ago.

Biden can ill afford troubles on the economy. 

The chaotic U.S. withdrawal from Afghanistan has significantly impacted Americans’ view of his job in office.

A Washington Post-ABC News poll released late last week showed Biden’s ratings turn negative for the first time: 51 percent of adults disapproved of his overall job performance and 44 percent approved.

Even though Afghanistan was the issue on which the president polled by far the worst — just 30 percent approved of his handling of the situation and 60 percent disapproved — Biden was also underwater on the economy, with 49 percent disapproving and 45 percent approving.

The poll underscored how much the political dynamics have changed for Biden since his early months in the White House. Earlier this year, the president’s response to the COVID-19 pandemic was widely admired and his overall approval ratings nestled in stable, modestly positive territory.

Biden’s Republican opponents are assailing him, not just on Afghanistan but also on the economy. Friday’s job numbers gave them new ammunition. Most economists predicted the nation would add more than 700,000 jobs last month. Instead, it added only 235,000.

“Biden’s plan is not working,” Tommy Pigott, rapid response director for the Republican National Committee, said in an email to reporters Tuesday. “Biden and Democrats spent the last five months paying Americans more not to work, and now there are 10 million job openings and half of small businesses say they have jobs they can’t fill.”

But if that could prove an effective political attack line with some audiences, it’s not at all clear that the central critique is true.

For a start, some studies that have examined job growth in states that cut off the pandemic-related unemployment benefits early failed to find an appreciable effect. This undercuts the link posited by conservatives between the payments and labor market shortages.

Economists who spoke to The Hill also noted that job figures for August, in particular, are notoriously volatile. A survey completed by employers plays a central role in determining those numbers, and nonresponse rates typically rise at the height of summer.

More broadly, there is no real question that the major impediment to solid economic growth is the pandemic itself.

The U.S. has just passed a grim landmark of more than 40 million known coronavirus infections. New cases were cropping up at a rate of around 160,000 per day late last week. The U.S. economy is also afflicted by COVID-19 overseas because of disruptions to global supply chains.

Mark Zandi, chief economist of Moody’s Analytics, warned against taking too melodramatic a view of the recent job numbers.

“The economic recovery is still on the tracks,” Zandi said in a phone interview. “It is going to ebb and it is going to flow because the pandemic is not over. The economy’s performance is tethered closely to the pandemic.”

Left-leaning economists are worried about the effect of the expiration of unemployment benefits, however. 

They fear the move could have a doubly negative effect — pitching millions of American families into genuine hardship and curbing economic activity more broadly as those families stop spending.

“It’s going to be devastating for those people who have been depending on the money. It’s going to be huge,” said Elise Gould, senior economist with the liberal Economic Policy Institute.

Gould also said that those payments had been “seeding the recovery,” helping the economy to emerge from its pandemic doldrums.

Other economists aren’t so sure that ending the expanded unemployment insurance will have such a dramatic effect, however.

Beth Ann Bovino, the U.S. chief economist at S&P, acknowledged that “there are a number of folks who are scared and I don’t want to say that everybody’s fine.”

However, she added: “We economists work with averages. So, on average, households are sitting with a lot of cash. Now, people in the high-income brackets are sitting on more cash, but those lower-income households do seem to have some cushion as well.”

The Biden White House is looking to move ahead speedily on its economic agenda — in part to help turn the page on the tumult in Afghanistan.

In particular, Biden and most in his party are pushing hard for the $3.5 trillion spending package that’s central to many of Democrats’ priorities. The measure is opposed by Republicans and has elicited concern from the Senate’s two most prominent centrist Democrats, Sens. Joe Manchin (W.Va.) and Kyrsten Sinema (Ariz.).

On Tuesday, The Hill obtained a memo sent by White House communications director Kate Bedingfield to Democrats on Capitol Hill.

“We face a fundamental choice in America right now as we rebuild our economy: this time, will everyone get in on the deal?” the memo stated. “The time is now. We have to meet the needs in front of us. Not tomorrow, not months from now, not next year. Right now.”

The stakes are high for Biden, not least because legislative action will become harder and harder as the midterm elections approach.

Economists like Zandi believe the nation is still on course for a full recovery — but he cautions that may not be fully realized until early 2023.

Biden needs signs of a full-fledged healing much sooner than that.

The Memo is a reported column by Niall Stanage.