President Donald Trump’s much heralded economic rebound is showing signs of fizzling out.
The U.S. added 661,000 jobs in September, a performance that ordinarily would be seen as stellar. But it was well below expectations for close to 1 million and represents a further slowdown in monthly job growth from the initial 4.8 million gained back in June and leaves the economy over 10 million short of restoring the 22 million jobs lost to the Covid-19 pandemic. The jobless rate dropped half a percentage point to 7.9%.
The Labor Department’s final jobs report before the election — strong on the surface but far less impressive in context — highlights challenges facing both Trump and Democratic nominee Joe Biden in the final month of the campaign.
As Trump loves to boast, job gains over the last five months are in fact historic at over 11 million. Economic growth numbers due out just before the election will also likely bust records. But the recovery is also clearly slowing down as close to $4 trillion in federal rescue money runs out with no agreement on a fresh shot of emergency aid. Layoff announcements are piling up again as businesses brace for a difficult fall and winter.
The rebound is also heavily tilted toward higher-income Americans and those with more education, along with investors buoyed by the strong bounce back on Wall Street.
In boasting about the raw numbers, as he does over and over, Trump risks sounding out of touch with the experience of the over 26 million Americans still receiving some type of unemployment insurance, particularly blue-collar workers he badly needs in the industrial Midwest and Florida.
Biden, meanwhile, has to make the nuanced argument that these “record” numbers don’t really mean what Trump says they do and that the recovery could be much stronger with a better pandemic response and larger federal aid package.
The economic numbers are part of a conundrum Democrats have worried about since early April when Harvard economist Jason Furman, a former top economic adviser to President Barack Obama, warned that Trump would head into Election Day with a string of eye-popping numbers. Furman said in an interview this week that Democrats should still worry, but perhaps not as much.
“The recovery that we have is about what I expected back in April, and we are a bit further along than I expected with a single-digit unemployment rate,” he said.
But Furman added that the clear slowdown in the recovery offers Biden and other Democratic candidates the opportunity to rebut Trump’s outsize boasts and further dent the president’s use of the economy as a campaign advantage, which has already largely vanished in public polling.
“I never argued that the economy would help Trump, but that Democrats shouldn’t count on the economy propelling them given the direction of the numbers,” Furman said. “Four months ago you might have thought the economy would be an unambiguous negative for Trump given this was the worst thing to happen since the Great Depression. But I think now it’s much more muddled.”
The economic backdrop for the November election is in fact something of a confusing mosaic. Job gains remain fairly strong but are slowing. Nearly one million people per week continue to seek unemployment assistance for the first time, numbers far higher than the pre-pandemic record of about 700,000 hit in the 1980s.
Consumer spending and personal income, which bounced back in previous months thanks in large part to emergency federal aid, are now slowing again with the end of expanded jobless benefits and direct cash payments.
And fresh job cuts are once again piling up in frightening ways from big companies such as Disney, Goldman Sachs, Continental Airlines, United Airlines, Shell and Marathon Oil, among many others. Big companies worried about fresh Covid-19 outbreaks and the end of federal assistance are now reducing their estimates of just how strong the recovery will be and how many workers they really need back.
Despite all this, Trump once again boasted about the strength of the recovery during the debate. “We’re reopening and we’re doing record business,” he said. “We had 10.4 million people in a four month period that we’ve put back into the workforce. That’s a record the likes of which nobody’s ever seen before.”
That’s both true and misleading. The vast majority of these are not new jobs but simply businesses rehiring laid off or furloughed workers following the nationwide shutdowns that drove the economy to a historic quarterly decline of over 31 percent on an annualized basis in the second quarter.
And by continuing to brag about the numbers, Trump risks alienating the tens of millions of Americans still out of work and suffering in the wake of the virus, especially with extra government support running out.
“What he says is misleading and likely to damage his prospects because there are still nearly 30 million on unemployment or some other form of government assistance,” said Joseph Brusuelas, chief economist at consulting firm RSM U.S. “It seems to me that the public will have a hard time squaring what he says with what they see as the reality on the ground.”
Biden tried to make some of these points in the first presidential debate earlier this year, though it’s not clear how much it broke through the chaotic nature of the event. “The difference is millionaires and billionaires like him in the middle of the Covid crisis have done very well,” Biden said. “But you folks at home, you folks living in Scranton [Pa.] and Claymont [Del.] and all the small towns and working-class towns in America, how well are you doing?”
The situation in critical swing states is also challenging for Trump. According to data compiled by financial Web site WalletHub, Florida is number 50 in terms of improvement in weekly initial jobless claims. Michigan is number 36 and Ohio is number 24.
Some critical swing states are also doing worse than the national average on the unemployment rate. According to the Labor Department’s latest state snapshot, which lags the national data, the unemployment rate in Pennsylvania is 10.3 percent, in Ohio it’s 8.9 percent and in Michigan it’s 8.7 percent.
And as Friday’s job report suggested, a lot of the initial burst in re-employment is now over and the economy will likely struggle to return to anywhere close to the record-low joblessness that preceded the pandemic.
“Of these lost jobs, about half are temporary and will come back once the pandemic winds down, but the other half are permanent job losses,” said Mark Zandi, chief economist at Moody’s Analytics. “Job growth is set to slow further as the boost from business re-openings will abate until the pandemic is over. And job declines are likely by year’s end if lawmakers don’t get it together in the next few days and provide more fiscal support to the economy.”
Friday’s jobs report represents among the last big economic numbers to come out before the election on Nov. 3. Trump will likely get another good headline on October 29 with the first reading on third-quarter gross domestic product growth. Estimates suggest the economy is likely to bounce back sharply, by more than 30 percent on an annualized basis, in the quarter. But even that big number will not be close to enough to overcome the second quarter loss given that it will be coming from such a depressed level.
It will be seen by many as another number that looks strong on the surface, but does not necessarily reflect the reality on the ground or the experience of millions of Americans. And the fourth quarter could be significantly slower without further federal support.
“The general sense is that the third quarter is ending with less momentum than it started with, raising questions about the fourth quarter. The expectation is that the momentum for the economic recovery is slowing,” David Donabedian, chief investment officer at CIBC private wealth management, said in a note to clients. “While the third-quarter GDP may show a rise, we don’t expect that pace to continue.”
Still, while the pace of recovery is clearly slowing and will likely slow further, Trump at least has the advantage that the overall numbers are getting better, not worse. And general trends are usually better predictors of electoral outcomes than raw numbers.
“I think you’d much rather have unemployment of 8 percent that used to be 15 percent than unemployment that just rose to 8 percent and is still rising,” Furman said.