The election is only 15 days away. But no matter who wins the US presidential contest in November, one of the most pressing problems for the administration to solve will be America’s broken jobs market.
“The harsh reality is that whoever the president is on January 20 has his work cut out for him,” said Beth Ann Bovino, S&P Global chief US economist, in a new report on Monday. “While the US is no longer careening toward a depression, labor market data shows the economy mired in a weak recovery, with the unemployment rate still high, at 7.9% – above or equal to the peak of eight of the past 11 recessions.”
In fact, the unemployment rate, which peaked at 14.7% in April may actually under-represent the fragility of America’s pandemic labor market: Those discouraged by a lack of available jobs, worried about health precautions or needing to stay home to care for children or elderly relatives have dropped out of the labor force altogether. And the unemployment rate doesn’t factor them in.
If we add back all the people who have dropped out of the labor force since February – many of whom are women – and count them as unemployed, the jobless rate would have been 10.3% last month, the S&P report said.
The unemployment rate isn’t expected to get back to its pre-pandemic level before 2024. Come January, the administration needs to throw a lifeline to those in need, Bovino said.
Here’s how the administration could accomplish that:
Stimulus
Democrats and Republicans have been stuck in gridlock on another stimulus bill for months. Over the weekend, House Speaker Nancy Pelosi said there was a 48-hour deadline for an agreement to be reached if the bill should pass before the election. That gives lawmakers until Tuesday.
As millions of Americans remain in need of government help to make ends meet, the country is also still facing a 30-35% chance to fall back into a recession, according to the S&P report.
Democrats have proposed a $2.2 trillion package, which would include another temporary boost to unemployment benefits. The first pandemic stimulus package added a supplemental $600 per week in jobless aid, but that expired at the end of July.
Republicans have proposed a $1.8 trillion package.
Infrastructure
Former Vice President Joe Biden and President Donald Trump actually have similar ideas for trade and infrastructure, according to the S&P report. Both the President and his challenger have promised infrastructure investments, which could create jobs and boost the economy.
Boosting infrastructure by some $2 billion – as proposed by Biden – could add as much as $5.7 trillion to US gross domestic product, the broadest measure of the economy, in 10 years, and create as many as 2.3 million jobs by 2024, S&P estimates.
Trade
Both Biden and Trump have also pledged to reduce America’s reliance on China, but their methods would likely be different.
Trumpt’s approach to China would probably continue on the “America First” route. S&P expects Biden would be more keen on building coalitions.
More protectionist policies could be risky for America’s fragile recovery. Meanwhile, fewer headlines and uncertainty would be good for sectors that are sensitive to trade policies, such as automakers.
Taxes
Biden and Trump’s views on what should be done about taxes and regulation differ quite a bit.
For example, the corporate tax rate fell from 35% to 21% under the Trump administration. The idea behind cutting company tax rates was to make the United States more compatible with other tax regimes, encourage firms to bring cash back home and create American jobs.
It just didn’t really work, the S&P report said, as companies used the money saved on taxes on shareholder-friendly things like buybacks rather than investing in their businesses and hiring workers.
“An unintended side effect, however, was the increase in the national debt, given the boost to the economy fell short of offsetting the hit to government tax revenues,” Bovino said.
That’s awkward at a time the deficit is ballooning on the back of much-needed government spending. Biden wants to restore the corporate tax rate back to 28%.
