Treasury Secretary Janet Yellen is feeling pretty hopeful on the direction of the U.S. labor market over the next two years as the pandemic slowly gets put in the rearview mirror, perhaps a little too optimistic some pros argue.
“I would expect that if this package is passed that we would get back to full employment next year,” Yellen said in a weekend interview on CNN. The primary underpinning of Yellen’s prediction is that President Biden’s $1.9 trillion stimulus proposal gets passed.
But all of that optimism on the jobs market is wishful thinking sitting here in February 2021, some experts contend. The vaccine rollout continues to crawl along and businesses remain laser-focused on tightly managing expenses amidst a cloud of uncertainty.
“I think that’s very optimistic of Janet Yellen. I think she is a great economist. I like 2021 as the year where we get output back to levels that were pre-pandemic, but employment numbers are just not going to get there until we get to 2023,” Hugh Johnson Advisors chief investment officer Hugh Johnson told Yahoo Finance Live.
The latest jobs report supports Johnson’s more tempered view. The U.S. labor market created a meager 49,000 jobs in January, according to the Labor Department. Figures for November and December were revised down by 72,000 and 87,000 jobs, respectively.
“Hiring was soft across most sectors of the economy last month, and we have yet to see clear evidence of an upturn in labor market momentum,” said Deutsche Bank senior U.S. economist Brett Ryan.
Still, Goldman Sachs chief economist Jan Hatzius appears to be in agreement with Yellen about a strong snapback in economic growth — fueled by loads of stimulus — will mean a sharp labor market recovery this year that extends into 2022.
Even if the stimulus plan doesn’t get passed in its entirety, any package north of $1 trillion could have a large positive effect on U.S. economic growth, Hatzius reasons.
Hatzius estimated in a new note on Monday that lawmakers will agree on a $1.5 trillion stimulus plan that would take 2021 GDP growth to 6.8% and 4.5% in 2022.
“We have lowered our forecast for the unemployment rate to 4.1% at the end of 2021 and 3.7%/3.4%/3.2% at the end of 2022-2024, implying an even tighter labor market than at the end of the last cycle,” Hatzius said.
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