Commentary: Lucky we don’t need Congress right now
Congress can finally get down to business, now that House Republicans elected Kevin McCarthy Speaker of the House after six days of chaotic voting. But McCarthy may have given up so much power to secure a handful of votes from far-right Republicans that the House remains dysfunctional for the next two years.
For the time being, that doesn’t matter for the economy. A solid jobs report for December shows no sign of the recession some economists are predicting for 2023. Employers added 223,000 new jobs in December, for a bulging total of 4.2 million new jobs in 2022. The pace of job growth slowed substantially from the beginning of the year to the end, but that’s a good thing. It shows the moderation in a hot economy that the Federal Reserve is looking for as a sign that inflation is on the way down.
Some analysts characterize the December job numbers as a Goldilocks report because it suggests a cooling trend that might eventually satisfy the Fed, with enough underlying strength to keep the economy out of a recession. Wage growth, for instance, dipped from a 4.8% annualized rate in November to 4.6% in December. The pace of wage growth has been slowing since April. It’s not intuitively obvious that slowing wage growth is a good thing, but when inflation is high, it is, sort of. The Fed worries about a “wage price spiral” in which soaring wages cause runaway inflation, which in turn pushes wages even higher and turns inflation into a Marvel supervillain. Slowing wage growth suggests that won’t happen.
At the same time, a surprising decline in service-sector activity and a similar drop in manufacturing activity augur more of a slowdown in coming months. These may or may not be signs of a recession, but in the upside-down world of inflation fighting, a slowing economy is cause for celebration, because it would also mean improving inflation. Investors see cause for optimism, which is why stocks rose following news of the December job gains, the slowdown in wage growth and a flatlining service sector.
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The Biden White House thinks it is starting the new year with excellent footing. “Today’s report is great news for our economy and more evidence that my economic plan is working,” Biden said in a January 6 statement on the jobs report. “The first two years of my presidency were the two strongest years of job growth on record.”
That’s true, but it’s not because of Biden’s economic plan. Biden benefited from lucky timing when he came into office two years ago. The post-COVID recovery was just getting started, and massive amounts of fiscal and monetary stimulus has already locked in a rapid rebound in output and employment. Biden did champion and sign the American Rescue Plan in 2021, but that may have overstimulated the economy and helped trigger the inflation that haunted Biden in 2022. No matter. Things are going Biden’s way for the time being, and like all presidents he’ll claim credit whether he deserves it or not.
Biden and his fellow Democrats also got a remarkable boost from the Speaker follies that led to McCarthy's election as House leader. Republicans earned more seats than Democrats in the November midterms, reclaiming the majority they lost in 2018. But it took six days and 15 votes—the most since the Civil War—for McCarthy to win a majority of the votes for speaker. A handful of far-right Republicans held out for concessions that will give them a kind of superminority control. They may be able to block votes on important matters such as extending the federal borrowing limit, which Congress will have to do at some point in 2023. They may also be able to oust the speaker at any time and throw the whole chamber back into chaos.
Biden, the old pol, knows he benefits from GOP infighting. “That’s not my problem,” Biden said dryly on January 4, when reporters asked him about the speaker's election at a press conference. “I just think it’s a little embarrassing. The rest of the world is looking.” As Biden knows, so are 2024 voters. If anarchic Republicans continue to knock inflation and other economic worries out of the headlines, Biden will have a good year for sure.
Rick Newman is a senior columnist for Yahoo Finance. Follow him on Twitter at @rickjnewman
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