The new Congress is present in Washington, DC, but it is not functioning. Republicans who control the House of Representatives can’t figure out who the next speaker should be. As long as this impasse persists, the House of Representatives cannot vote on legislation, hold hearings, receive security briefings, or conduct normal legislative activity.
For the time being, this is irrelevant for the economy. A solid December jobs report shows no signs of the recession some economists are predicting for 2023. Employers added 223,000 new jobs in December, bringing the total to 4.2 million new jobs in 2022. The pace of job growth has slowed significantly from the start of the year to end, but that’s a good thing. It shows moderation in a hot economy, which the Federal Reserve is looking for as a sign that inflation is on the way down.
Some analysts are characterizing December’s jobs number as a Goldilocks report because it points to a slowdown trend that may eventually satisfy the Fed, with enough underlying strength to keep the economy out of a recession. Wage growth, for example, fell from an annualized rate of 4.8% in November to 4.6% in December. The pace of wage growth has slowed since April. It’s counterintuitively obvious that slowing wage growth is a good thing, but when inflation is high, it kind of is. The Fed fears a “wage-price spiral” in which rising wages cause runaway inflation, which in turn pushes wages even higher, turning inflation into a Marvel supervillain. Slower wage growth suggests this will not happen.
At the same time, a surprise slowdown in service sector activity and a similar slowdown in manufacturing activity bode more for a slowdown in the coming months. These may or may not be signs of a recession, but in the upside-down inflation-fighting world, a slowing economy is cause for celebration, as it would also mean an improvement in inflation. Investors see reason for optimism, which is why shares rose on news of December job growth, slowing wage growth and a flat services sector.
The story goes on
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The Biden White House expects to start the new year on an excellent footing. “Today’s report is great news for our economy and further proof that my economic plan is working,” Biden said Jan. 6 in a statement accompanying the jobs report. “The first two years of my presidency were the two strongest years of job growth on record.”
That’s true, but it’s not because of Biden’s economic plan. Biden benefited from lucky timing when he took office two years ago. The post-COVID recovery was only just beginning, and massive fiscal and monetary stimulus have already led to a rapid recovery in output and employment. Biden championed and signed America’s bailout plan in 2021, but that may have overstimulated the economy and helped trigger the inflation that plagued Biden in 2022. Doesn’t matter. Things are going his way for now, and like all presidents, he will claim credit whether he deserves it or not.
Biden and his fellow Democrats are also getting a notable boost from speaker slides taking place in the House of Representatives as Republicans seek to regain control of the chamber. Republicans won more seats than Democrats in the November midterm elections, reclaiming the majority they lost in 2018. But so far they can’t even complete the pro forma steps needed to start legislation. California Rep. Kevin McCarthy, once the presumptive speaker, has received the most GOP votes he needs to win the post. But a handful of far-right holdouts are preventing McCarthy from reaching the majority threshold he needs, and right now it’s not clear how Republicans will end the impasse.
What is clear, however, is that a relatively small number of Republican radicals will play an outsized role in the functioning of the House of Representatives over the next two years. If McCarthy does end up gaining enough support to get the speaker’s post, it will be through unprecedented concessions that give the radicals a kind of superminority control. They may be able to block votes on important matters like extending the federal credit limit, which Congress must do sometime in 2023. You may also be able to depose the speaker at any time, throwing the entire chamber back into chaos. If it’s anyone other than McCarthy, he or she needs to make some sort of deal with the Radicals, too, unless the Democrats do the unthinkable and snag a few votes for a more moderate Republican leader.
Biden, the ol’ Pole, knows he’s profiting from the GOP circus and would be foolish to divert attention with his own attention-grabbing statements. “That’s not my problem,” Biden said Jan. 4 when reporters asked him about his choice of speaker at a news conference. “I just find it a little embarrassing. The rest of the world is watching.” As Biden knows, so are voters in 2024. If anarchic Republicans continue to shove inflation and other economic concerns out of the headlines, Biden is sure to have a good year ahead.
Rick Newman is a senior columnist for Yahoo Finance. Follow him on Twitter at @rickjnewman
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