Unemployment fell to 3.5% under Biden. For how much longer?

WASHINGTON - President Joe Biden keeps seeing good economic news and bad public approval ratings. The unemployment rate fell to 3.5% in March and more than 236,000 jobs were added, but there has been no political payoff for the president.

US. adults are skipping past the jobs numbers and generally feeling horrible about the economy. White House aides can list plenty of reasons for the pessimism: high inflation, the lingering COVID-19 pandemic and the polarization that leaves Republicans automatically believing the economy is sour under a Democratic president.

The Federal Reserve expects the jobless rate to hit 4.5% this year; the Congressional Budget Office expects it to hit 5.1%. Even the proposed budget Biden just put forth models an increase - 4.3% - from the current rate. Many Wall Street analysts likewise expect the Fed's interest rate hikes to tame inflation but cause demand to tumble and joblessness to rise.

Friday's jobs report showed the economy is cooling as wage growth slowed, but the labor market is still running much hotter than the overall economy in a way that can fuel doubts. Biden's bet is that the conventional economic wisdom is wrong and that 6% inflation can be beaten while keeping unemployment low.

"We continue to face economic challenges from a position of strength," Biden said in a statement about the latest jobs report.

A new independent economic analysis helps to show why the low unemployment rate has yet to resonate with people: There aren't enough workers to fill the open jobs, causing the economy to operate with speed bumps and frictions that make things seem worse than they are in the data. The analysis suggests the economy would arguably function far more smoothly with unemployment higher at 4.6%, even though that could translate into nearly 2 million fewer people holding jobs.

The job market is what economists call "inefficiently tight," a problem the U.S. also faced during the Vietnam War, the Korean War and World War II. The current tightness is as severe as it was at the end of WWII. This mismatch causes companies and consumers to feel as though the economy is in a rut, said Pascal Michaillat, an economist at Brown University.

"For shopkeepers, it means operating shorter hours because it's not possible to find workers to fill the extra time slots," he said. "For households, it means more time trying to hire nannies or plumbers or construction workers and less time doing enjoyable things."

Based on his calculations on job openings and employment from a 2022 paper written with the economist Emmanuel Saez, Michaillat estimates that a 4.6% unemployment rate would make the labor market efficient. At that rate, the day-to-day transactions that shape an economy would have less friction because the demand for workers would be closer to the supply. Government figures released Tuesday show employers have 9.9 million job openings, almost double the number of unemployed people seeking work.

This sounds like a good problem to have because it implies wages should increase. But economic theory suggests the only way to resolve this situation is for unemployment to rise.

Asked what this dilemma might mean for Biden, Michaillat suggested, "The economics is mingling with the politics, as it so often does."

Republicans criticize Biden. House Ways and Means Committee Chairman Jason Smith, R-Mo., said small-business owners "are telling us that Democrats' anti-work policies have made it difficult to stock their shelves, hire workers and keep their doors open."

More than two years after Biden's $1.9 trillion coronavirus relief package became law, it's a humbling frustration for the White House that so many people feel the economy is terrible when his record on jobs is unrivaled among modern presidencies.

Biden's unemployment rate so far is better than that of Presidents Ronald Reagan, Bill Clinton, Barack Obama, Jimmy Carter, Gerald Ford and both Bushes. While unemployment was lower for a period under Presidents Lyndon Johnson and Richard Nixon, a smaller share of people was in the labor force compared with now.

Biden set out to use the COVID-19 aid dollars to get people back to work quickly and prevent the typical "scarring" in recessions that can leave people earning less for the rest of their careers and, in some cases, permanently jobless.

He succeeded at that mission as the economy has about 4 million more jobs than the Congressional Budget Office forecast it would at this stage.

A White House official, who spoke on condition of anonymity, said the policies were designed with the specific goal of bringing jobs back faster than in past recoveries. It took more than six years for the total number of U.S. jobs to return to pre-Great Recession levels. In the pandemic recovery, the jobs total rebounded in a little over two years.

The rebound also benefited historically disadvantaged groups. Black unemployment in March dropped to 5%, the lowest level on record. And the Black labor force participation rate - which measures how many people have jobs or are searching for work - surpassed the level for white people last month.