So why did well-regarded professional forecasters underestimate the strength of the economy? And how is it that jobs and GDP are doing better than they expected, even as inflation

How good is the U.S. economy? It’s beating pre-pandemic predictions.

Americans might be reluctant to believe it, but on paper, the U.S. economy is doing pretty well. So well, in fact, that we’re performing better than forecasts made even before the pandemic began.

The nation’s employers added another 199,000 jobs in November, the U.S. Bureau of Labor Statistics reported on Friday. This means that overall employment is now 2 million jobs higher than was expected by now in forecasts made way back in January 2020 by the nonpartisan Congressional Budget Office.

The job market isn’t the only front on which we have bested forecasts made before the pandemic. The overall size of the economy, as measured by gross domestic product, is larger than it was expected to be around now. The International Monetary Fund says that U.S. gross domestic product is higher today, in inflation-adjusted terms, than it had expected at the beginning of 2020. The IMF ran these calculations for countries around the world, and found the United States was an outlier in beating the organization’s pre-covid forecasts.

So why did well-regarded professional forecasters underestimate the strength of the economy? And how is it that jobs and GDP are doing better than they expected, even as inflation has been unmistakably worse?

To some extent, all these things are related. Forecasters obviously did not anticipate the pandemic. They also did not anticipate the unprecedentedly enormous government response to the coronavirus. When the public health crisis hit and disemployed millions of American workers, policymakers implemented unusually generous fiscal and monetary stimulus.

Such measures helped get people back to work sooner, and avoided the long, painful effort back to normal that had followed the Great Recession. Thus, faster job growth. They also massively amplified consumer demand, at a time when the productive capacity of the economy (i.e., companies’ ability to make and deliver the things their customers want) couldn’t keep up. Employers faced all kinds of shortages — of products, materials, workers — and consumers anxious to buy stuff raised the prices of whatever inventory companies actually had available. Thus, faster price growth.

If you had asked me back in January 2020 how Americans might feel about an economy with an “extra” 2 million jobs, unemployment less than 4 percent, and inflation just over 3 percent, I probably would have guessed the public would be pretty content. However people are still furious about the extra price growth they’ve already endured to date, and unimpressed by all that extra job growth. Maybe it’s human nature for people to view better jobs or pay as things they’ve earned, while a painful price increase is something inflicted upon them — even if both are, to some extent, two sides of the same coin.

Available at: https://www.washingtonpost.com/opinions/ 2023/12/08/jobs-report-economy-beats-pandemicpredictions/. Retrieved on: Dec. 12, 2023. Adapted.

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