The Morning Dispatch: COVID-19 Loosens Its Grip on the Economy

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Quick Hits: Today’s Top Stories

• President Joe Biden and German Chancellor Olaf Scholz met at the White House on Monday, projecting a united stance on the Russia/Ukraine conflict despite Germany’s public waffling. Although his administration waived sanctions on Russia’s Nord Stream 2 pipeline last year out of deference to Germany, Biden said yesterday “there will be no” pipeline if Russia sends tanks and troops into Ukraine: “We will bring an end to it.”

• The Democratic governors of Connecticut, New Jersey, and Delaware announced Monday they will lift their statewide school mask mandates on February 28, March 7 and March 31, respectively. Individual school districts will still be allowed to implement their own mandates after those deadlines have passed.

• Ottawa Mayor Jim Watson declared a state of emergency on Sunday in response to the days-long “Freedom Convoy” protests by thousands of Canadian truckers and citizens opposed to vaccine mandates and other pandemic restrictions, saying the demonstrations—which include road blockades, driving on the sidewalk, and continuous horn honking—pose a “serious danger” to residents. The Ottawa Police Service announced it had arrested seven people on Sunday and is investigating more than 60 others, primarily for “mischief, thefts, hate crimes, and property damage.”

• President Biden’s top science advisor, Dr. Eric Lander, resigned Monday night after an internal White House investigation found the director of the Office of Science and Technology Policy routinely “bullied and demeaned his subordinates.” The White House had previously said Lander would remain in his position, despite Biden’s stated policy of firing anyone who treats colleagues with disrespect “on the spot, no ifs, ands, or buts.”

• Spotify CEO Daniel Ek sent a memo to staff over the weekend saying he is “sorry” for how the Joe Rogan controversy is affecting them, but reiterated that “I do not believe that silencing Joe is the answer” because “canceling voices is a slippery slope.” Rogan apologized over the weekend for repeatedly saying the N-word in older podcasts—he said he used to think it was acceptable to use in context—and agreed to remove more than 100 episodes from Spotify’s catalog.

• The Commerce Department announced Monday the Biden administration had reached an agreement with Japan to repeal most of the Section 232 steel tariffs the Trump administration levied against the island nation in 2018. Beginning April 1, the first 1.25 million metric tons of Japanese steel imported in a given year will not be subject to additional fees.

• The Commerce Department also announced Monday it is adding 33 Chinese companies to its “Unverified List” of businesses that face stricter export controls because the U.S. government was “unable to establish” their legitimacy and reliability. 

• The Internal Revenue Service announced Monday it will “transition away” from using a third-party facial recognition company, ID.me, to authenticate taxpayers creating online accounts. “The IRS takes taxpayer privacy and security seriously, and we understand the concerns that have been raised,” Commissioner Chuck Rettig said.

• Former Georgia state Rep. Vernon Jones announced Monday he is dropping his gubernatorial bid, endorsing former Sen. David Perdue, and instead running for Congress, likely in Georgia’s 10th District. Former President Donald Trump reportedly encouraged the move, which may boost Perdue on the margins in his effort—built largely on Trump’s stolen election claims—to unseat sitting Gov. Brian Kemp.

• Frontier and Spirit Airlines announced Monday the two companies have agreed to merge in a $6.6 billion deal that, if approved by antitrust regulators, would create the fifth-biggest airline in the United States.

The Economy Decouples From COVID-19

When the Bureau of Labor Statistics published its monthly Employment Situation Summary Friday morning, Jason Furman—a top Obama administration economist—got right to the point of what it found.

“January 2022 will be remembered as the month the virus ceased to be boss,” he tweeted minutes after the report was released. “It wreaked havoc & death at a terrible scale. But the economy no longer cares.”

In the days leading up to the report, economists and White House officials alike were bracing for an ugly number. There was not a single day in January when the United States was averaging fewer than about 450,000 new COVID-19 cases per day, with more than 815,000 being confirmed at the peak of the Omicron wave in the middle of the month—the week the BLS collected the bulk of its data. Many school districts reverted to remote learning, several states reinstated public health emergencies, and the number of weekly initial unemployment claims began to tick back up after months of decline. Payroll processor ADP estimated the U.S. could have lost as many as 300,000 jobs.

“The month’s jobs report may show job losses, in large part because workers were out sick from Omicron at the point when it was peaking during the … week where the data was taken,” White House Press Secretary Jen Psaki said last Monday. Brian Deese, director of the White House National Economic Council, told CNBC Americans should “be prepared for January employment data that could look a little strange.”

Or not. U.S. employers added 467,000 jobs in January, and BLS revisions to previous months’ data—better than originally reported in November and December, worse than originally reported in June and July—resulted in another 217,000 being added to 2021’s totals. The United States has now recovered about 87 percent of pre-pandemic total employment, with 2.9 million fewer people working now than in February 2020.

“I don’t think I’ve ever been happier to be more wrong,” Jared Bernstein, a top economic adviser to President Joe Biden, emailed Ben Casselman of The New York Times. Biden himself took a Friday morning victory lap: “America’s job machine is going stronger than ever, fueling a strong recovery and opportunity for hardworking women and men all across this great country.”

Almost as telling as the topline jobs numbers themselves were the sectors that produced them. Professional services, transportation, and warehousing had strong showings, but the leisure, hospitality, and retail industries—typically the first to shed staff when the virus disrupts everyday life—accounted for about 45 percent of January’s gains.

“Employers desperately want to hang onto their workers,” Furman told The Dispatch in an interview. “Even if they don’t have, in leisure and hospitality, enough diners in the month of January, they know they probably will in February and March.” The most recent data estimate there are nearly 11 million unfilled job vacancies in the United States; employers are hanging onto staffers they might not need at this given moment because they assume—probably correctly—that it will be extremely difficult to hire new ones when the virus subsides.

Though businesses are incorporating the end of the Omicron wave into their plans, that doesn’t mean the variant didn’t have a significant impact on last month’s labor market. Six million people reported working fewer hours—or none at all—at some point in the past four weeks because their employer closed or lost business due to the pandemic, and 1.8 million people said the virus kept them from looking for a job. About 15 percent of workers reported working remotely, up from 11 percent a month earlier.

But by and large, vaccines and Omicron’s decreased virulence have decoupled COVID-19 case counts and economic activity just as they’ve decoupled COVID-19 case counts and deaths attributed to the virus. “The way the economy responds to the virus has changed quite a lot—and diminished quite a lot—over time,” Furman said.

Stocks rose following the surprisingly solid report, but not as much as you might think, as Friday’s data removed investors’ last remaining shreds of doubt about an imminent Federal Reserve tightening cycle.

In remarks following the Fed’s policy meeting in late January, Chairman Jerome Powell said most central bankers were “of a mind” to begin raising the federal funds rates in March in an effort to combat inflation, even though “the recent sharp rise in COVID cases associated with the Omicron variant will surely weigh on economic growth this quarter”—particularly the travel and restaurant industries. With that slowdown looking less and less likely, the hawkish pivot may be even more aggressive. CME Group’s FedWatch tool now sees six interest rate hikes in 2022 as the most likely scenario, followed by five and then seven. On January 12, St. Louis Fed President James Bullard was considered an outlier when he suggested raising rates four times might be necessary.

The unemployment rate ticked up from 3.9 to 4 percent in January, and—due primarily to end-of-year population adjustments—the labor force participation rate came in at 62.2 percent, 0.3 percentage points above previous estimates and the highest level since February 2020’s 63.4 percent. But Powell and his colleagues were specifically fixated on two numbers from Friday’s BLS report. Average hourly earnings jumped 5.7 percent over the past 12 months, and the phenomenon is only accelerating—they increased 0.7 percent in January alone, an 8.4 percent annual pace.

On a macro level, higher wages are of course a good thing—provided they are accompanied by increased overall productivity. But given current levels of inflation (a 7 percent annual rate per the latest consumer price index report), near-record wage growth has some officials concerned about the prospects of a wage-price spiral. “I’m not saying nobody gets a pay rise, don’t get me wrong,” Bank of England Governor Andrew Bailey told BBC last week. “But I think what I am saying is, we do need to see restraint in pay bargaining—otherwise it will get out of control.”

The United Kingdom’s current annual rate of inflation is about 1.5 percentage points below the United States’, but the Bank of England’s Monetary Policy Committee voted 5-4 on Thursday to raise interest rates a second time in as many months, to 0.5 percent. The four voters in the minority wanted to go even further, jumping straight to 0.75 percent.

Something similar could play out in mid-March at the next Federal Open Markets Committee meeting. “I think you’ll almost certainly have some people on the committee voting for 50 basis points,” Furman said. “And if the next wage growth number is as high as this one was—and the next two inflation numbers surprise to the upside—then I expect we’ll see 50 basis points.”

Worth Your Time

• In light of the ongoing Joe Rogan conversation, progressive comedian Jeff Maurer’s latest newsletter tries to sketch out some suggestions on when it’s actually worth taking a moral stand and formally disassociating yourself with somebody. “Much of my frustration with the left in recent years stems from the feeling that many efforts to render people untouchable have run badly afoul of these guidelines,” he writes. “The bounds of what’s ‘acceptable’ grow ever more narrow. Minor infractions are treated as unforgivable sins; there have even been several attempts to treat widely held opinions as shocking violations of norms. … People [are engaging] in public denunciations that are quite obviously exercises in virtue signaling that are unlikely to achieve anything positive.”

• In a piece for Commentary, Noah Rothman takes the Republican National Committee to task for its “staggering stupidity” last weekend. “The RNC’s misstep exposes Republican elected officials to political attacks that may prove highly effective,” he writes. “What audience did the RNC have in mind when they not only censured their own members for investigating January 6 but papered over the day’s events? They certainly were not talking to the universe of persuadable voters that the GOP will need to win over next November. It’s not even clear that they were appealing to their fellow Republicans, who polls have shown are as offended by the attack on the Capitol and the agitation that preceded it as is everyone else.”

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Toeing the Company Line

• On the site today, Audrey and Harvest take a look at the rapidly dwindling number of Democratic and Republican moderates in the House of Representatives. Johan Hannah, Eric Edelman, and Jonathan Ruhe argue that Joe Biden can save his flailing presidency by convincing Saudi Arabia to sign onto the Abraham Accords. And Frederick M. Hess and Hayley Sanon detail how universal pre-K programs aren’t the educational panacea some experts say. 

• On Monday’s episode of Advisory Opinions, David and Sarah discuss whether Judge Ketanji Brown Jackson is still the frontrunner for Stephen Breyer’s Supreme Court seat, talk about a strange case having to do with Yelp reviews, and revisit previous discussions about no-knock raids and diversity in the NFL coaching ranks.

Let Us Know

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• Weekly Dispatch Lives beginning February 15,

• In-person events later this year,

• Sarah’s new Dispatch Book Club (and accompanying podcast),

• Big website and comment section upgrades in the coming months, or

• Our revamped Dispatch Politics vertical with Sarah’s Sweep and Chris’ Stirewaltisms.

Reporting by Declan Garvey (@declanpgarvey), Andrew Egger (@EggerDC), Charlotte Lawson (@lawsonreports), Audrey Fahlberg (@AudreyFahlberg), Ryan Brown (@RyanP_Brown), Harvest Prude (@HarvestPrude), and Steve Hayes (@stephenfhayes).