Amid Biden’s strong jobs report, US recession still looms: Larry Summers

Economist Larry Summers threw cold water on Friday’s jobs report, saying its data reaffirmed that the US economy was overheating and likely headed for a recession.

Summers, U.S. Treasury secretary from 1999 to 2001 and director of the National Economic Council under former President Barack Obama, made the comments Friday to CNN’s Wolf Blitzer in response to new federal numbers showing stronger job growth than intended. Summers’ views on the precarious state of the economy gained increased credibility after he predicted that President Joe Biden’s stimulus policies would significantly increase inflation.

“I think our main problem is that we have an unsustainably overheated economy that’s driving high inflation, which is cutting people’s wages,” Summers told CNN.

New jobs figures for July showed unemployment fell further, from 3.6% to 3.5%, continuing months of post-pandemic job gains. The Bureau of Labor Statistics, which prepared the figures, said the U.S. unemployment rate had returned to February 2020 levels before the coronavirus pandemic caused jobs to hemorrhage from the economy.

Larry Summers speaking
Economist Larry Summers said the United States was heading into a recession despite high job numbers. Above, Summers is interviewed by Fox News’ Maria Bartiromo on May 24, 2017 in New York City.
Robin Marchan/Getty Images

Blitzer asked Summers if the report changed his earlier prediction that there was a three-quarters chance the US economy would enter a recession within the next two years. Summers said he stood by his prediction.

“The fundamental problem, the fundamental challenge that the economy is facing is kind of overheating,” Summers said. “And that just shows that we’re overheating, overheating again.”

In a Washington Post editorial in February 2021, Summers wrote that Biden’s $1.9 trillion COVID-19 stimulus package would trigger “inflationary pressures of the kind we haven’t seen in a generation.”

At the time, Biden and his economic advisers dismissed inflationary concerns given the extent to which the pandemic had hurt the economy.

But the consumer price index, a key inflationary measure, rose, hitting 9.1% in June, the highest figure since 1981 and an increase from 8.6% in May.

Economists have blamed inflation on too much demand for too few goods. Rising inflation in the United States has been accompanied by months of strong job growth and wage increases.

Biden took to Twitter on Friday to announce the new jobs numbers, specifically the 613,000 manufacturing jobs he says have been created since taking office.

“More people are working than at any time in American history,” Biden said. “It’s not a coincidence, it’s results.”

But Summers told CNN that while it’s “good news when people get jobs,” he said the report showed inflation was still out of control. He said the high number of vacancies reflected in the report and rising dollar wages, but not purchasing power, mean prices will continue to rise.

The Federal Reserve announced that it would raise rates again in an effort to slow the economy without causing a recession. But Summers said the “proverbial soft landing” has become more difficult.

Summers offered a bright note. He said the Cut Inflation Act, a sweeping bill that looks set to pass Congress, will reduce prescription drug prices and make renewable electric power more affordable, while by increasing corporate taxes.

“I think that’s a positive thing that’s going to make the Fed’s job easier, make the economy stronger and better protected in the long run,” he said.

Newsweek contacted the White House for comment.

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