Trump or Biden May Not Face Such a Terrible Economy in 2021
(Bloomberg Opinion) -- As President Donald Trump and former Vice President Joe Biden prepare to debate on Tuesday, one huge question is where the economy will stand when one of them begins the next presidential term in January.
Things are evolving rapidly as we adjust to this new normal, but we've now had five months of economic data since March; and as my Bloomberg Opinion colleague Tim Duy notes, if nothing else, we know this crisis isn't like 2007 through 2009. While many measures of economic activity remain distressed, measures of consumer and business sentiment suggest economic conditions similar to those in 2016.
Significant uncertainties remain — coronavirus-related economic headwinds, the timing and efficacy of vaccines, and the prospects for fiscal stimulus either in this presidential term or the next — but the next president may inherit an economy more like the one greeting President Trump at the start of 2017 than the one President Barack Obama faced at the start of 2009.
Four key economic measures are the labor market, household finances, housing and broad economic sentiment. Comparing each to the expansion that lasted from 2009 to 2019 can give us some idea of where things stand, even as the economic picture remains murky overall.
Of the four, the job market remains the weakest. The unemployment rate — which is understated because of people dropping out of the labor force during the pandemic — was at 8.4% in August, the same level as when 2012 began. The share of people between the ages of 25 and 54 who are working is at 75.3%, also matching 2012. Both measures should improve somewhat over the next four months as the gradual economic reopening continues. There's still some low-hanging fruit from the resumption of limited indoor dining in New York City, some school districts resuming face-to-face instruction and a slow return of office workers.
Household finances, telling a different story, are strong in the aggregate. I speculated a month ago that the net worth of American households would hit a new high by the end of the third quarter. It happened even sooner than I thought — at the end of the second quarter, according to recent data, driven by the stock-market rebound and continued gains in home prices. This wasn't just a story of the rich getting richer either; a July Federal Reserve survey showed fiscal relief from the CARES Act had its biggest impact on lower-income households. Resilient household finances may be the most underappreciated dynamic in this recovery.
The housing market, as Thursday's new home sales data reiterated, is on fire. To say there's been a V-shaped recovery in housing would be an understatement; it’s as strong as it has been in 14 years. To what extent this carries into 2021 is uncertain, but housing is a tailwind to growth.
Sentiment might be the best holistic way to evaluate the economy right now, as it incorporates the distress in the labor market, the recovery in home and stock prices, and how people are feeling about the future. The monthly Conference Board measure of consumer confidence is the weakest of the bunch, with its August reading at about the same levels seen in mid-2014. The weekly Bloomberg consumer comfort measure is more positive and has recovered to early-2017 levels.
Data from the monthly Job Openings and Labor Turnover Survey is also a sentiment measure in a way, telling us something about how employers and employees are behaving. Job openings have recovered much more quickly than after the 2008 recession; as of July they were back to early-2018 levels. Perhaps more notably, the rate at which workers are quitting jobs has spiked back to levels seen in 2016 and 2017, suggesting people in industries less impacted by the pandemic still have other options, or they're not as scared as they were a decade ago.
Putting it all together into a projection of what conditions might look like in January, you get an economy that will still need help in some areas, but on the whole might not look as bad as thought a few months ago.
A strong housing market and household balance sheets put us in a good position to grow. The labor market, with a few more months of modest improvements, might be at levels similar to those in 2013. Economic sentiment is somewhere in the middle, suggesting an environment last seen in 2017 or so.
A critical task for the next president will still be to get the economy at least back to where it was earlier this year. But that might be achievable largely with policies targeted to help those who have been most negatively impacted, freeing up political capital and focus for other political objectives.
This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.
Conor Sen is a Bloomberg Opinion columnist. He has been a contributor to the Atlantic and Business Insider.
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