The Biden economy

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Joe Biden assumed office with more economic upside than any other president in recent history.

Between the lines: Presidencies are creatures of circumstance. For Biden, it's a smoldering economy atop a solid foundation, with a rebuild plan whose primary materials (vaccines and stimulus) are in unusually high supply. If economic arrows turn red, it likely means Biden botched the blueprint.

Donald Trump inherited a long-standing recovery, which meant he could help accelerate growth but had no recession to reverse.

Barack Obama was faced with a financial crisis born of deep, systemic design flaws. There was no vaccine to cure what ailed America's economy.

George W. Bush campaigned in the last days of the dotcom bubble, which already had begun bursting when he entered the White House.

Bill Clinton inherited a recession, but only a relatively mild one. 

A big difference between 2020 and past recessions is that 2020 was caused by an event exogenous to the economy. The economy was the victim, not the culprit. 

 The Trump economy certainly didn't work for everyone, but many of its macro strengths could remain beneath the ash, including pre-pandemic wage growth and decreases in poverty rates.  

Biden can dig a lot of them up, just by succeeding on vaccine distribution. He then can leverage Democratic control of Congress — and America's desensitization to big numbers — to throw money at short-term economic problems. It's all basic blocking and tackling.

But, but, but: Tailwinds don't necessarily result in a smooth flight. In fact, Biden's biggest risk could be the fact that American business, investors and most voters expect success. Anything short of the Roaring 20's (Part 2) would be viewed as an economic embarrassment.

The bottom line: Never before has a bad economy looked so good for a presidential legacy.

1. Biden's economic luck

Never before has a bad economy looked so good for a presidential legacy.

Photo illustration of Joseph Biden smiling with an upwards trending line and stars

Photo illustration: Eniola Odetunde/Axios. Photo: Kyle Rivas/Stringer via Getty Images

Business

Deep Dive - New Washington: Economy

Politics

Joe Biden

Joe Biden assumed office with more economic upside than any other president in recent history.Between the lines: Presidencies are creatures of circumstance. For Biden, it&#x27;s a smoldering economy atop a solid foundation, with a rebuild plan whose primary materials (vaccines and stimulus) are in unusually high supply. If economic arrows turn red, it likely means Biden botched the blueprint.

After a record economic expansion, the coronavirus pandemic sent the U.S. economy into a recession as unemployment soared to staggering heights. The country now faces urgent questions about how much stimulus is needed for reeling consumers and businesses, and what a recovery might look like.

Economy & Business

President Biden has made the COVID-19 crisis and a post-Trump return to national unity and traditional democratic ideals his top priorities. From vaccinations to stimulus to schools, Biden is seeking bipartisan compromise while showing a willingness to use executive authority and bare Democratic majorities in the U.S. House and Senate to implement his policies. Republican leaders are navigating deep party divisions over if and how to move beyond former President Trump.

Politics & Policy

Data: Bureau of Economic Analysis, Bureau of Labor Statistics, Census Bureau, Yahoo Finance; Chart: Andrew Witherspoon/Axios

2. State of economic affairs

It would be hard for things to get much worse than 2020, but Wall Street fund managers and the general public may be pricing in too much optimism.

Why it matters: President Biden steps into a situation that is expected to improve significantly, with projections from economists and government offices for falling unemployment, rising GDP and a booming stock market setting him up for success. 

But those prognostications aren't guaranteed, and high hopes dashed could lead to a strong blowback from a country already on edge and still highly polarized. 

What's happening: The Congressional Budget Office expects U.S. growth to return to its pre-COVID level midway through this year and for the unemployment rate to reach 6% by year end — a far rosier picture than it painted just six months ago.

Similarly, economists are ramping up their predictions for growth thanks to cabin fever and a personal savings rate that shot up to record levels during the pandemic and remains at its highest since the 1980s.

Economists at Goldman Sachs are even predicting that U.S. GDP growth in the third quarter will reach 10%, a milestone without modern precedent, save for the 33% growth in Q3 2020 that followed the 35% contraction in Q2.

What they're saying: That's got asset managers expecting big returns from the stock market this year and businesses banking on rising sales and profits.

"As consumer confidence returns, so will spending, with 'revenge  shopping' sweeping through sectors as pent-up demand is unleashed," analysts at consulting firm McKinsey wrote in a recent outlook.

Yes, but: Even before the recent run-up in equities prices, the stock market was "priced for perfection," John Lynch, CIO of Comerica Wealth Management tells Axios.

And if 2020 taught us anything, it's that we should prepare for the unexpected.

Look out: "The primary risks to the outlook continue to be medical," Ben Ayers, senior economist at Nationwide, tells Axios. 

"We’re keeping  an eye on the COVID variants and the effectiveness of vaccines against  them. A resurgence of a mutated form of the virus would be detrimental to the global recovery."

"An early pullback in policy support from either the federal government or the Federal Reserve is another risk for growth — but policymakers have been resolute in their support for the recovery so far."

The bottom line: The key to a virtuous V-shaped recovery for the economy is the ability of policymakers to get as many people vaccinated as possible, says Joe Brusuelas, chief economist at RSM.

"My fundamental outlook since mid-2020 on this has not changed," he tells Axios. "V stands for vaccine. No vaccine, no recovery."

3. Priced for perfection

Dashed hopes could lead to strong blowback.

Photo illustration of Joseph Biden looking worried with a downwards trending line and stars

Photo illustration: Eniola Odetunde/Axios. Photo: Pool/Getty Images 

Stock market

It would be hard for things to get much worse than 2020, but Wall Street fund managers and the general public may be pricing in too much optimism.Why it matters: President Biden steps into a situation that is expected to improve significantly, with projections from economists and government offices for falling unemployment, rising GDP and a booming stock market setting him up for success. <ul><li>But those prognostications aren&#x27;t guaranteed, and high hopes dashed could lead to a strong blowback from a country already on edge and still highly polarized. </li></ul>What&#x27;s happening: The Congressional Budget Office expects U.S. growth to return to its pre-COVID level midway through this year and for the unemployment rate to reach 6% by year end — a far rosier picture than it painted just six months ago.<ul><li>Similarly, economists are ramping up their predictions for growth thanks to cabin fever and a personal savings rate that shot up to record levels during the pandemic and remains at its highest since the 1980s.</li><li>Economists at Goldman Sachs are even predicting that U.S. GDP growth in the third quarter will reach 10%, a milestone without modern precedent, save for the 33% growth in Q3 2020 that followed the 35% contraction in Q2.</li></ul>What they&#x27;re saying: That&#x27;s got asset managers expecting big returns from the stock market this year and businesses banking on rising sales and profits.<ul><li>&quot;As consumer confidence returns, so will spending, with &#x27;revenge shopping&#x27; sweeping through sectors as pent-up demand is unleashed,&quot; analysts at consulting firm McKinsey wrote in a <a class="gtmContentClick" data-vars-link-text="recent outlook" data-vars-click-url="https://www.mckinsey.com/featured-insights/leadership/the-next-normal-arrives-trends-that-will-define-2021-and-beyond" data-vars-content-id="232a4b3f-c2a6-4bc0-b9e8-a9d90fd993c4" data-vars-headline="Priced for perfection" data-vars-event-category="story" data-vars-sub-category="story" data-vars-item="in_content_link" href="https://www.mckinsey.com/featured-insights/leadership/the-next-normal-arrives-trends-that-will-define-2021-and-beyond" target="_blank">recent outlook</a>.</li></ul>Yes, but: Even before the recent run-up in equities prices, the stock market was &quot;priced for perfection,&quot; John Lynch, CIO of Comerica Wealth Management tells Axios.<ul><li>And if 2020 taught us anything, it&#x27;s that we should prepare for the unexpected.</li></ul>Look out: &quot;The primary risks to the outlook continue to be medical,&quot; Ben Ayers, senior economist at Nationwide, tells Axios. <ul><li>&quot;We’re keeping an eye on the COVID variants and the effectiveness of vaccines against them. A resurgence of a mutated form of the virus would be detrimental to the global recovery.&quot;</li><li>&quot;An early pullback in policy support from either the federal government or the Federal Reserve is another risk for growth — but policymakers have been resolute in their support for the recovery so far.&quot;</li></ul>The bottom line: The key to a virtuous V-shaped recovery for the economy is the ability of policymakers to get as many people vaccinated as possible, says Joe Brusuelas, chief economist at RSM.<ul><li>&quot;My fundamental outlook since mid-2020 on this has not changed,&quot; he tells Axios. &quot;V stands for vaccine. No vaccine, no recovery.&quot;</li></ul>

"Finished off the year with the highest Stock Market in history. Setting records with your 401k’s, just like I said you would. Congratulations to all!"

— Trump's final tweet about the stock market before his account was suspended by Twitter.

"The idea that the stock market is booming is his only measure of what’s happening. Where I come from, Scranton and Claymont, the people don’t live off the stock market. Just in the last three years, during this crisis, the billionaires in this country made, according to The Wall Street Journal, $700 billion more. $700 billion more. Because that’s his only measure. What happens to the ordinary people out there? What happens to them?"

— Biden at the last presidential debate on Oct. 22

4. 45 vs. 46 on the stock market

"The idea that the stock market is booming is his only measure of what’s happening."

&quot;Finished off the year with the highest Stock Market in history. Setting records with your 401k’s, just like I said you would. Congratulations to all!&quot;— Trump&#x27;s <a class="gtmContentClick" data-vars-link-text="final tweet" data-vars-click-url="https://link.axios.com/click/22870725.45/aHR0cHM6Ly93d3cuYmxvb21iZXJnLmNvbS9mZWF0dXJlcy90cnVtcC10d2VldHMtbWFya2V0Lz91dG1fc291cmNlPW5ld3NsZXR0ZXImdXRtX21lZGl1bT1lbWFpbCZ1dG1fY2FtcGFpZ249c2VuZHRvX25ld3NsZXR0ZXJ0ZXN0JnN0cmVhbT10b3A/5849752d3c8aa983568b458bBa1efe265" data-vars-content-id="337a29ee-f2ce-43e8-b8ac-043132d63189" data-vars-headline="45 vs. 46 on the stock market" data-vars-event-category="story" data-vars-sub-category="story" data-vars-item="in_content_link" href="https://link.axios.com/click/22870725.45/aHR0cHM6Ly93d3cuYmxvb21iZXJnLmNvbS9mZWF0dXJlcy90cnVtcC10d2VldHMtbWFya2V0Lz91dG1fc291cmNlPW5ld3NsZXR0ZXImdXRtX21lZGl1bT1lbWFpbCZ1dG1fY2FtcGFpZ249c2VuZHRvX25ld3NsZXR0ZXJ0ZXN0JnN0cmVhbT10b3A/5849752d3c8aa983568b458bBa1efe265" target="_blank">final tweet</a> about the stock market before his account was suspended by Twitter.&quot;The idea that the stock market is booming is his only measure of what’s happening. Where I come from, Scranton and Claymont, the people don’t live off the stock market. Just in the last three years, during this crisis, the billionaires in this country made, according to The Wall Street Journal, $700 billion more. $700 billion more. Because that’s his only measure. What happens to the ordinary people out there? What happens to them?&quot;— Biden at the last <a class="gtmContentClick" data-vars-link-text="presidential debate on Oct. 22" data-vars-click-url="https://link.axios.com/click/22870725.45/aHR0cHM6Ly93d3cuZ3BiLm9yZy9uZXdzLzIwMjAvMTAvMjIvbGl2ZS10cnVtcC1iaWRlbi1maW5hbC1wcmVzaWRlbnRpYWwtZGViYXRlP3V0bV9zb3VyY2U9bmV3c2xldHRlciZ1dG1fbWVkaXVtPWVtYWlsJnV0bV9jYW1wYWlnbj1zZW5kdG9fbmV3c2xldHRlcnRlc3Qmc3RyZWFtPXRvcA/5849752d3c8aa983568b458bB1a4ed004" data-vars-content-id="337a29ee-f2ce-43e8-b8ac-043132d63189" data-vars-headline="45 vs. 46 on the stock market" data-vars-event-category="story" data-vars-sub-category="story" data-vars-item="in_content_link" href="https://link.axios.com/click/22870725.45/aHR0cHM6Ly93d3cuZ3BiLm9yZy9uZXdzLzIwMjAvMTAvMjIvbGl2ZS10cnVtcC1iaWRlbi1maW5hbC1wcmVzaWRlbnRpYWwtZGViYXRlP3V0bV9zb3VyY2U9bmV3c2xldHRlciZ1dG1fbWVkaXVtPWVtYWlsJnV0bV9jYW1wYWlnbj1zZW5kdG9fbmV3c2xldHRlcnRlc3Qmc3RyZWFtPXRvcA/5849752d3c8aa983568b458bB1a4ed004" target="_blank">presidential debate on Oct. 22</a>

Data: Bureau of Labor Statistics, Federal Reserve, Peter G. Peterson Foundation; Chart: Andrew Witherspoon/Axios

5. Inheriting inequality

Macro

Axios Macro

Graphic: Danielle Alberti, Sarah Grillo/Axios

Here are some of the players in the administration who have President Biden's ear on the economy and will help shape Biden-era policy.

Why it matters: The latest jobs report cements the gravity of the crisis Biden's economic team has to tackle as it works on the most immediate challenge: pushing a massive $1.9 trillion rescue plan through Congress.

Among the names to know: Treasury Secretary Janet Yellen, who served as Federal Reserve chair under Obama. 

Brian Deese: most recently an executive at BlackRock who headed up sustainable investing but who also served as deputy director of the National Economic Council under Obama. 

Susan Rice, who in this elevated role will oversee major portions of Biden's “Build Back Better” plan, as Axios' Margaret Talev reported.

Jared Bernstein: a longtime economic adviser to Biden and now deputy on the Council of Economic Advisers.

What ties them together: "They clearly have as one of their core values how policy will affect racial equity in a way that I think is new," Heidi Shierholz, a labor economist at the left-leaning Economic Policy Institute, told Axios.

"I've had plenty of interactions with administration folks to know that [equitable policy] really is truly front and center" for them, says Shierholz, who worked alongside Bernstein at the nonprofit think tank in years past.

Between the lines: Congressional Democrats have a powerful foothold now thanks to a (slim) Senate majority, with some taking the helm of key committees that will shape the business world.

One example ... Sen. Elizabeth Warren will join the Finance Committee, which among other things oversees tax legislation — a cornerstone of Biden's "Build Back Better" plan. 

That committee's new chair, Oregon Sen. Ron Wyden, told CNBC this week he'll prioritize tax reform.

Others include: The new chair of the Budget Committee, Sen. Bernie Sanders, who will also help steer Biden's economic policies through Congress, plus Sen. Sherrod Brown, the new Banking Committee chair.

What they're saying: The White House economic team is in "complete solidarity" that the rescue plan is "of the magnitude to meet the challenges we face," Bernstein told reporters on Friday.

By the numbers: Over 10 million Americans are considered unemployed. Of those, 40% are "long-term unemployed" — i.e. out of work for over 6 months. 

There are 4 million fewer people in the labor force — meaning they have given up looking for work altogether — than before the pandemic hit. 

What to watch: The team's first big test is weeks away. 

Unemployment benefits for millions of Americans will expire without additional action — at a time when the labor market is still fragile and the virus is still raging as the vaccine rollout gets underway.

Biden's economic team will write a new crisis playbook

Biden turns to experienced hands for White House economic team

6. Biden's economic power players

Biden's economic team's first big test is weeks away.

Policymaking

Jobs

Here are some of the players in the administration who have President Biden&#x27;s ear on the economy and will help shape Biden-era policy.Why it matters: The latest jobs report cements the gravity of the crisis Biden&#x27;s economic team has to tackle as it works on the most immediate challenge: pushing a massive $1.9 trillion rescue plan through Congress.

Markets

Axios Markets

The Biden administration, tasked with helping the American economy recover, is having to reinvent the economic toolbox to be able to address a crisis unlike anything the world has seen in a century.

Reality check: Whole sectors of the economy, especially in live events and the service industry, are intentionally paralyzed to avoid more catastrophic spread of the virus. Meanwhile, many white-collar telecommuters are doing better than ever. So economic policy needs to be targeted at the neediest.

President Biden's economic plan starts with the current $1.9 trillion rescue package. Once that's passed, he then intends to turn to large-scale infrastructure investments that are aimed at creating American jobs and reinventing the post-crisis economy for a zero-carbon world. 

A new New Deal: Biden’s “Build Back Better” initiative, a sprawling plan that includes medium- and long-term efforts to upgrade U.S. infrastructure with an eye on curbing climate change, could prove an effective way to boost the economic recovery. 

Large-scale projects can create a lot of jobs, and re-skilling and education programs may help the labor force longer term.  And that could have effects on U.S. productivity. 

“When we look at some of the possibilities, public infrastructure, if done right… it shifts the curve in terms of the potential growth of the economy—steepens the curve so that we would see stronger growth prospects down the road.” 

 S&P chief U.S. economist Beth Ann Bovino

Unemployment: It remains high at 6.3%, as many jobs just can’t come back until the pandemic is over.  

“One of the major lines of defense is increasing payments to those who are unemployed,” says Nathan Sheets, a former Treasury official who's now chief economist at PGIM Fixed Income. 

The Paycheck Protection Program was conceived as a way to preserve some of these jobs until consumers are able to patronize all businesses again—but the results have been mixed. 

“One of the fundamental questions that I think economic policy is struggling with is: How much different will the composition of the GDP and unemployment be on the other side of the pandemic,” says Sheets. “Will the hotel or movie theater industry ever be as big as they were?”

Be smart: Much of this requires Congress’ approval, so Biden will have to lean on his political skills and his very slim Democratic majority in both houses—while he has it—to get things done. 

And while tax increases could help some deficit hawks in Congress feel more at ease with massive spending, the administration has signaled it won’t focus on this yet. 

The bottom line: The U.S. economy won’t recover unless the pandemic is under control, so Biden’s economic toolbox inherently includes efforts to curb the spread of the virus too. 

7. A new pandemic economy toolbox

The U.S. economy won’t recover unless the pandemic is under control.

Illustration of a wrench turning adjusting a quarter

The Biden administration, tasked with helping the American economy recover, is having to reinvent the economic toolbox to be able to address a crisis unlike anything the world has seen in a century.Reality check: Whole sectors of the economy, especially in live events and the service industry, are intentionally paralyzed to avoid more catastrophic spread of the virus. Meanwhile, many white-collar telecommuters are doing better than ever. So economic policy needs to be targeted at the neediest.

45 vs. 46 on the stock market

Illustration of the Capitol dome with a spike and receipts on the top. 