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Biden Goes Out With a Bang in the Jobs Market

Reuters
By Yuval Rosenberg and Michael Rainey
Friday, January 10, 2025

Happy Friday! Here’s an evening update to kick off your weekend.

Biden Goes Out With a Bang in the Jobs Market

President Joe Biden is ending his term in office with a remarkably strong labor market. According to data released Friday by the Labor Department, employers added a surprising 256,000 jobs in December, the largest increase since March, and the unemployment rate dropped a tenth of a percentage point to 4.1%. Both numbers were better than analysts expected.

Most sectors of the economy saw job growth during the month, including healthcare (up 46,000 jobs), retail (+43,000) and government (+33,000). Manufacturing, however, was basically flat in December and negative for the year, with 87,000 jobs lost in the sector over the last 12 months. Wage growth was flat, too, but finished the year with a solid 3.9% gain.

All told, the U.S. economy created 2.23 million jobs in 2024, for an average of 186,000 jobs per month, bringing the total for Biden’s full term to more than 16 million, aided by a strong rebound from the Covid-19 pandemic. As Dan Primack of Axios notes, Biden’s job tally exceeds that of his immediate predecessors. Donald Trump saw net growth of 2.1 million jobs over his four years, though that number was significantly higher (6.6 million over the first three years) before the pandemic. Barack Obama’s total was 7.1 million, while George W. Bush oversaw an increase of 5.2 million jobs.

Biden took note of the strong labor market. “With today’s report ... we have created over 16.6 million jobs over the course of my administration and this is the only administration in history to have created jobs every single month,” Biden said in a statement. “Although I inherited the worst economic crisis in decades with unemployment above 6% when I took office, we’ve had the lowest average unemployment rate of any administration in 50 years with unemployment at 4.1% as I leave.”

Biden added that although many experts thought it would take years for the U.S. to recover from the pandemic, the country is in an enviable position relative to other advanced economies, with the strongest growth among comparable nations. As acting Secretary of Labor Julie Su said, “The United States is the envy of the world, the only nation that has truly bounced back from the challenges of the pandemic. With pride, we hand the next administration an economy and a labor market that are strong and resilient, with opportunities for workers at their core.”

What the experts are saying: The December report provided more support for the idea that the U.S. has pulled off a soft landing following the pandemic, in which inflation is brought under control without a recession. “Goldilocks herself would be feasting on this combo of strong labor force engagement, real wage gains and low inflation,” said economist Julia Coronado.

RSM Chief Economist Joseph Brusuelas said the strength of the labor market suggests a case of “American exceptionalism” as far as the economy is concerned. “The great American jobs machine churns on,” he wrote Friday. “Hiring remains strong, wage growth clearly supports household consumption in the vicinity of 3% to 3.5% and the economy expanded at or above 3% over the final six months of last year.”

Austan Goolsbee, a former White House economic adviser and current president of the Federal Reserve Bank of Chicago, told CNBC that the numbers point to a remarkably resilient economy. “It’s a strong jobs report, it makes me comfortable that the job market is stabilizing at something like a full employment rate,” he said. He added that he is not concerned about the strong labor market contributing to a new inflationary surge.

Worries on Wall Street: Investors on Wall Street had a very different take, sending stocks sharply lower as they readjusted their expectations for interest rate cuts by the Federal Reserve this year. Investors now think the central bank will keep rates where they are at the next two meetings, holding rates higher for longer than previously expected. “Good news for the economy but not for the markets, at least for now,” said Wells Fargo Investment Institute Senior Global Market Strategist Scott Wren, per CNBC.

One analyst even said the odds of rate increases have grown as the Fed confronts a stronger-than-expected economy, which could get another boost from Republican tax cuts. “Our base case has the Fed on an extended hold” on rates, said Bank of America’s Aditya Bhave in a note to clients on Friday. “But we think the risks for the next move are skewed toward a hike.”

The bottom line: Biden is handing his rival and successor a sturdy labor market and a resilient economy. Major changes could be ahead, however, as the incoming Trump administration prepares to roll out new policies including lower taxes, higher tariffs and mass deportations, all of which hold the potential for uncertain and perhaps contradictory effects in the months ahead.

Extending Trump Tax Cuts Would Benefit Top Earners the Most: Treasury

As Republicans prepare to extend the 2017 Trump-era tax cuts that are currently scheduled to expire at the end of the year — or make them permanent — a new analysis by the Treasury Department finds that fully renewing the cuts would cost more than $4 trillion over 10 years, and the tab could run as high as $5.5 trillion if certain business tax changes are made as well. The report also finds that, while taxpayers across all income levels would see lower tax bills on average, top earners would get by far the largest boosts in after-tax income.

The report, published by Treasury’s Office of Tax Analysis, examined a couple of different scenarios: either a full extension of the expiring individual and estate tax provisions of the 2017 law or a more modest extension that reversed the cuts for those with incomes above $400,000 a year and also allowed the business and estate tax cuts to sunset as scheduled.

The full extension would cost $4.2 trillion between 2026 and 2035. Overall, families would see a 2.2% increase in after-tax income — a gain of about $2,000 on average — but the biggest cuts would go to those with the highest incomes, the analysis finds: “Families between the 95th and 99th percentiles would receive a tax cut of 3.0 percent of after-tax income, families in the top 1 percent but not the top 0.1 percent would receive a tax cut of 3.6 percent of after-tax income, and families in the top 0.1 percent would receive a tax cut of 4.2 percent of after-tax income.”

A bonanza for the top 1%: Those numbers translate into an average tax cut of more than $32,000 for the top 1% of earners and more than $314,000 for the top 0.1% compared to an average cut of $6 for the bottom 10% of earners.

The top 10% of earners would see roughly 60% of the benefit from the tax changes under this scenario, and the top 30% would get more than 80%.

The second scenario, in which the 2017 tax cuts are reversed for those with incomes above $400,000, would involve a much lower cost of about $1.8 trillion over 10 years. Families would get an average tax cut of 1%, or about $1,000.

The result would be the same as above for most families. Those at the very bottom would still get a $6 cut, on average while families between the 40th and 50th income percentiles would still get an average tax cut of $524, for example. But the top 5% of earners would see far smaller gains — and taxes would rise by about $15,000 a year for the top 1% and by about $100,000 a year for the top 0.1% of earners.

The bottom line: Extending all the expiring 2017 tax cuts would result in lower tax bills across the income spectrum, but the new Treasury analysis, like others before it, shows that top earners stand to gain the most.

Republicans Eye $5.7 Trillion Menu of Spending Cuts: Report

Republicans planning their tax cut package must also figure out ways to offset the cost.

Sen. Mike Crapo, the chairman of the Senate Finance Committee, has argued that they should use a so-called current policy baseline, arguing that an extension of current tax law should not officially count as costing more than $4 trillion. “If you're not changing the tax code, you're simply extending current policy—you are not increasing the deficit,” he told Fox Business this week.

Budget watchers criticize that idea as a gimmick, and Republicans continue to look for ways to cut spending to pay for their tax cuts and other priorities.

Politico reports that Rep. Jodey Arrington, the Republican chairman of the House Budget Committee, has been circulating a menu of potential spending offsets that includes significant changes to Medicare, Medicaid and the Affordable Care Act. The list of options also includes cuts to welfare and food stamps as well as rolling back green energy tax credits and other Biden climate programs.

“Republicans involved in the reconciliation plans have been generally targeting the listed programs for several months, but internal GOP fights over trillions of dollars in potential cuts are just beginning,” Politico reports. “The overall savings add up to as much as $5.7 trillion over 10 years, though the list is highly ambitious and unlikely to all become law given narrow margins for Republicans in the House and Senate.”

The bottom line: Republicans are looking for ways to slash trillions of dollars in spending both to reduce the size of government and to help cover the costs of the Trump agenda. Many of their options are likely to divide their narrow majority and most or all will outrage Democrats and could come with steep political costs.

Numbers of the Week

These numbers don’t come close to conveying the full scope of the tragic loss and destruction from the Los Angeles wildfires, but they are striking and heartbreaking, nonetheless. The fires have left at least 10 people dead, though the real number remains unknown and authorities expect the number to rise. They have forced at least 180,000 people to evacuate as they have destroyed more than 10,000 buildings and homes and burned more than 35,000 acres — an area larger than the city of San Francisco.

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