The Post-Pandemic Boom

Biden inherited a very strong economic recovery, not a house ‘on fire.’ 

WSJ editorial. 

"President Biden can hardly be blamed for trumpeting the U.S. economic resurgence in his address to Congress. But his claim that “America’s house was on fire” when he entered office? It was already extinguished, as Thursday’s first-quarter GDP report showed.

Real GDP rose 6.4% in the period as vaccines rolled out, state lockdowns eased and Americans spent December stimulus payments. Incredibly, real GDP was a mere 0.87% below the 2019 fourth-quarter business cycle peak and probably would have surpassed it if not for supply-chain problems and disincentives to work. Consumer spending contributed 7.02 percentage-points to growth—about 70% of that for goods, but spending on services also increased, especially on recreation, food and accommodation. 

Housing chipped in 0.49 percentage-points as the surge in home building and renovations continued. Business investment added 1.29 percentage-points, mostly from software and IT equipment, despite a global semiconductor shortage and transportation bottlenecks that have snarled manufacturing. Net exports and reduced inventories subtracted 3.51 points.

What’s amazing is that U.S. output is nearly what it was in the fourth-quarter of 2019 even with payrolls being about 5% smaller. Businesses and workers have become more productive during the pandemic. Aggregate employee compensation is 2.9% higher than in 2019’s fourth quarter as businesses have increased pay to reward and attract workers. Total personal income in the first quarter was up a whopping 16.7% from the pre-Covid peak. Much of this is pent-up savings—the personal savings rate was a near record 21%—that will turn into more consumer spending as people resume travel and leisure activities.

Mr. Biden wants to take credit for rescuing an economy in flames, but Democrats in Washington have been dousing dead embers. The economy was poised to accelerate as vaccines rolled out no matter who was President.  

GDP grew 33.4% in the third quarter last year and 4.3% in the fourth despite another surge of Covid cases. The $1.9 trillion in spending that Democrats passed last month wasn’t needed. Nor was the $900 billion that Republicans agreed to in December in hopes of retaining the two Georgia Senate seats.

This gusher in government transfer payments has hampered the recovery by increasing the incentive not to work. Employers across the country say they can’t find workers due to the federal enhanced $300 weekly jobless benefits that won’t expire until September. Nearly half of unemployed workers can make as much on the couch as they can on the job.

Big businesses can afford to raise wages to compete, but many smaller ones can’t, especially with their cost of goods rising. Federal Reserve Chairman Jerome Powell nonetheless assured the country this week that any inflation will be temporary and that he has no plans to scale back its bond purchases.

That no doubt elated Democrats, who will need the Fed to monetize much of their $4 trillion in new spending plans. Even though Mr. Biden claims to have ended the recession, the Fed and Democrats will continue spraying the economy with more money."