The number of employed Americans won’t return to its pre-pandemic level until 2024, but the broad economy is expected to fully recover by the middle of this year, according to a Congressional Budget Office report issued Monday.
The projection shows just how long the job market still has to go to heal after suffering the steepest loss on record in April, when 20.5 million jobs evaporated and the unemployment rate shot up to 14.7% in a single month.
It could pressure the White House and Capitol Hill to speed the passage of another relief bill, as well as an economic recovery package. President Joe Biden is already facing resistance in Congress to the $1.9 trillion rescue proposal he unveiled last month. He is scheduled to meet Monday afternoon with a group of GOP senators, who have put together a $618 billion counteroffer. The President also plans to release a recovery package later this month.
The nation’s recovery remains on shaky footing, with the economy adding back only about half of the positions that disappeared. A whopping 140,000 jobs were lost in December, the first monthly loss since April. The forecast for the January report, which will be released Friday, calls for only 50,000 positions to be added. The unemployment rate is expected to remain flat at 6.7%, where it has been stuck since November.
Labor market conditions will continue to improve, according to the CBO’s 10-year outlook. The economic expansion will prompt many people to rejoin the labor force, which includes both those working and those looking for jobs. It should return to its pre-pandemic size next year.
The unemployment rate will gradually decline and the number of employed Americans will fully recover to pre-pandemic level in 2024, the agency estimates.
It is projecting the unemployment rate to be 4.2% in 2024-25. It was 3.5% last February, before the pandemic hit.
The economy will recover more quickly
While the labor market recovers, so will the overall economy. After all, America runs on consumer spending so the more consumers are working and spending their wages, the better.
The CBO predicts America’s real gross domestic product, the broadest measure of economic activity, will grow at a pace of 4.6% in 2021. By that forecast, the economy will be back at its pre-pandemic size by the middle of the year.
Although 4.6% growth sounds pretty good, the economy could use a jolt after US GDP decreased 3.5% in 2020 — its worst decline since 1946. It was the first decline in GDP since the financial crisis. That final report card for 2020 made one thing clear: the economy needs more help.
It’s important to note that the CBO report doesn’t include President Joe Biden’s proposed stimulus plan, which could give the economy a much-needed sugar rush.
The pandemic put an end to America’s longest economic expansion in history last spring as business shuttered and the nation came to a standstill. Despite rapid growth in the second half of last year, the US economy still hasn’t fully recovered. According to the CBO it will take until 2025 for America to close its output gap, which is the term economists use to describe the gap between actual GDP growth and potential GDP growth.
Over the next five years, real GDP will grow at an average of 2.6%, according to the report released Monday, before surpassing its potential in 2025. Between 2026 and 2031, real GDP is expected to grow by 1.6% on average.
More stimulus will speed the recovery
Biden’s $1.9 trillion stimulus proposal could speed the economic recovery up further, according to a report from Moody’s Analytics. Even as the sheer size of the bill is causing some lawmakers and exports to recoil.
“Today’s CBO report, in line with other recent estimates, shows that the economy is on its way to recovering,” said Maya MacGuineas, president of the Committee for a Responsible Federal Budget, a non-partisan watchdog group.
“More funding is warranted to assist those out of work because of the pandemic, prevent state and local government layoffs, boost economic demand, prevent a decline in household incomes and end this pandemic once and for all. But it shouldn’t take $1.9 trillion to fill a $400 billion or $800 billion hole,” she added.
But Moody’s predicts GDP could jump by more than 7% on an annualized basis in the first quarter of this year and by almost 8% for the full year. In 2022, the economy could post an additional gain of almost 4%.
At that pace, 7.5 million jobs would be created this year and another 2.5 million next year, allowing the economy to recover all the jobs lost. The unemployment rate would be between 4% and 4.5%.
Biden’s plan would speed up the recovery by about a year, compared to no additional fiscal support, according to Moody’s.
Left-leaning activists are already using the CBO report to push the President not to compromise with Republicans and shrink his proposal.
“This report makes clear that much more needs to be done to get people back on the job,” said Zac Petkanas, senior advisor of Invest in America, an advocacy group. “We can’t afford half-measures that nibble around the edges. Our nation requires big, bold public investment now to get people back to work as soon as possible.”