Will Republicans doom Trump by declaring premature economic victory?
The coronavirus depression is not remotely over
For the first time since the coronavirus pandemic struck, we now have a pretty decent jobs report. There were 2.5 million new jobs in May, the biggest number recorded since statistics started being recorded in 1939. The unemployment rate fell somewhat to 13.3 percent. Republicans were jubilant. "It’s a stupendous number. It’s joyous, let’s call it like it is. The Market was right. It’s stunning!" President Trump posted during his usual morning cable news live-tweet. White House economic adviser Stephen Moore told the Washington Post's Jeff Stein that no more rescue was needed: "There's no reason to have a major spending bill. The sense of urgent crisis is very greatly dissipated by the report." A Senate Republican aide added: "This definitively kills any chance of trillions of new spending."
However, we are plainly still light-years from full economic recovery, and America will need further economic rescue to avoid becoming trapped in a severe depression. If Republicans keep declaring premature economic victory, they will do untold damage to Trump's re-election prospects.
To begin, even a sharp improvement relative to an apocalyptic baseline is hardly cause for celebration. March and April saw the worst employment reports in American history — with a total of 22.1 million job losses together. That means May undid a mere 11 percent of the damage to jobs. A 13.3 percent unemployment rate is still higher than at any point since the Great Depression, aside from this April. The prime-age employment rate (the fraction of workers aged 25-54 with a job) jumped from 69.7 percent to 71.4 percent — but that is still the lowest rate since March 1977 outside the current crisis. If a cop is beating you with a riot baton, ending the attack will feel pretty good, relatively speaking, even if you are still bleeding from the ears. But you will still need medical attention.
Moreover, it seems that in the Bureau of Labor Statistics surveys, millions of workers are declaring themselves as "employed" when they are really unemployed on temporary layoff. That suggests the true unemployment rate in May was more like 16.3 percent, though in April it would have been 19.2 percent. Furthermore, state and local governments lost 310,000 jobs last month, for a total of 1.6 million since February. The number of permanent job losses (as opposed to temporary layoffs) also rose, and the rate of permanent unemployment jumped to nearly 5 percent.
It is somewhat surprising that May saw such a big jump in jobs, but on second thought it makes some sense. Most states are relaxing their lockdowns, and most of the population has gotten at least a piece of the various economic rescue programs — the small business grants, economic relief payment, and super-unemployment. The savings rate jumped to its highest recorded level in April, and now people are looking to take care of things they have been putting off — like dentistry, which accounted for fully 10 percent of the job creation last month. (Incidentally, that demonstrates that these are not really "new" jobs — they are old ones coming back online as businesses start back up.)
At the May rate, we will not reach the pre-crisis employment level for about eight months — or January of 2021. But there is little reason to suspect even that will happen. The economic rescue payment has long passed, applications to the small business grant program will end at the end of June, and super-unemployment is set to expire at the end of July. The gigantic austerity and layoffs from state and local governments will be a further ongoing drag on recovery.
As I have previously written, even before the pandemic hit the U.S. economy was fundamentally unsound, and today not remotely in position to launch into a self-sustaining recovery. Just as it took war mobilization to finally whip the Great Depression, it will take a huge jumpstart of stimulus to get us back near full employment once the coronavirus pandemic has passed.
But the pandemic has not remotely passed. The easing of lockdowns appears to be backfiring in many states, including California, Texas, North Carolina, Arizona, South Carolina, Utah, and Alaska. The ongoing wave of mass protests and cavalier police brutality in response may further fuel infection. There is a strong chance that at least some social distancing measures will remain in place or be reimposed in most states over the coming months, especially after summer passes — further holding back recovery.
The most reliable rule of thumb in politics is that lousy economic conditions are bad for incumbent presidents and parties. If they had any sense, Republicans would be eagerly taking up Democratic proposals to get more money into the hands of the citizenry, so as to give Trump the best chance at winning re-election. But because this stimulus must come in the form of spending instead of tax cuts for the rich, Republicans have a strong ideological resistance to it. If no more stimulus is passed, and Trump loses thanks in part to a wretched economy, he will only have himself and his party to blame.
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