This week in Bidenomics: A rebound begins

Rick Newman

The Biden administration has gotten used to bad news: Worsening COVID, out-of-nowhere inflation, failed legislation. In the days ahead of the latest employment report, White House officials even pre-acknowledged the likelihood of a big labor-market setback in January, as the Omicron COVID variant peaked and businesses pulled back.

That caution may have been prudent, but it turned out to be unnecessary. Employers added a robust 467,000 jobs in January, defying all expectations of a pullback in hiring. The news was uniformly solid. Wage growth accelerated and more people started looking for work. Revisions for 2021 also showed stronger job growth than reported at the time. At some point this year, total employment is likely to finally exceed pre-pandemic levels.

The monthly jobs report normally reflects incremental changes in the economy that everybody’s already aware of. Surprises are uncommon. The January numbers are different. In a healthy economy, 200,000 new jobs per month is typical growth. Employers more than doubled that pace of job growth in January, despite obvious disruptions caused by a new surge in COVID infections, hospitalizations and deaths. For the first time in the COVID pandemic, the economy is shrugging off COVID.

“The 467,000 gain in payrolls in January is even stronger than it looks, as it came despite the spike in absenteeism driven by the Omicron virus wave,” Capital Economics explained in a Feb. 4 research note. “The gain appears to make a mockery of our fears that Omicron would weigh heavily on payrolls.”

President Biden bragged about “the greatest year of job creation under any president in history.” But economists, for once, share his ebullience. Here’s a sampling of commentary from some typically sober-minded analysts:

Comerica: “Stunning jobs report.”

Bank of America: “Clean bill of health.”

FWDBonds: “The best economy in 50 years is back.”

Harvard economist Jason Furman: “January 2022 will be remembered as the month the virus ceased to the be boss. The economy no longer cares.”

Biden needs a break, needless to say. Never-ending COVID and 7% inflation have pushed his approval rating to the low 40s, the worst of his presidency. That won’t snap back because of one economic report. But the narrative on the economy is improving, and the timing actually looks pretty good for Biden.

Omicron now seems to be fading and warmer spring weather should bring further relief from the virus. Americans are itching to get out and start spending on travel, entertainment and other parts of the service economy. That could ease some of the intense demand for goods that’s driving inflation. It’s reasonable to think that by summer, things will start to feel normal again and wavering confidence will improve, which would be just in time for Democrats who now seem poised to lose control of one or both houses of Congress in the November midterm elections.

Plenty could go wrong, too

Biden also seems to be handling the tense standoff between Russia and Ukraine about as well as anybody could hope. Russian President Vladimir Putin is undoubtedly looking for a way to outfox or embarrass the United States and its NATO allies, but so far, it hasn’t worked. Biden’s decision to beef up the U.S. troop presence in eastern Europe shows U.S. resolve in response to Russian threats of a Ukraine invasion. Washington, for once, is also countering the sort of disinformation campaign that is usually a Russian advantage. Putin could still invade, but Biden’s handling of the U.S. response looks considerably more competent than the messy withdrawal of U.S. troops from Afghanistan last summer.

The biggest factor for financial markets is now the Federal Reserve’s monetary tightening. Had the economy lost jobs in January, as many economists expected, it would have indicated weakness and a possible delay in interest-rate hikes, which the Fed is likely to start in March. With the job market hot, however, the Fed remains likely to hike several times this year. That may not be great for stocks, since higher borrowing costs tend to lower corporate profits. But the economy seems ready for interest-rate normalization after nearly two years of extraordinary monetary stimulus.

There’s always plenty that could go wrong, as Biden learned in his first year in office, when the U.S.-backed Afghan government collapsed overnight and inflation began devouring family budgets. Another COVID variant could upend everything. Inflation could get worse instead of better. Russia could wreak more havoc than NATO can manage. But sometimes the surprises are welcome instead of ugly.