About That Moody’s Report

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President Joe Biden delivers remarks on the economy from the White House in Washington, D.C., July 19, 2021.
(Jonathan Ernst/Reuters)

President Biden has found a new favorite report to use in support of his infrastructure plans. During his town hall with CNN yesterday, the president asserted that the report — written by Mark Zandi and Bernard Yaros Jr. from Moody’s Analytics — says that “if we pass the other two things I’m trying to get done, we will, in fact, reduce inflation.”


As Ramesh already pointed out today, the Moody’s report does not, in fact, say that.

Biden also made a point of mentioning that the report is from “a Wall Street firm, not some liberal think tank.” The idea that Wall Street is full of a bunch of right-wingers is not really true, and if lead author Zandi’s campaign donation records are any indication, he leans left. That doesn’t mean he’s a bad economist or that his report can’t be trusted. It just means that Biden’s suggestion that this report represents some kind of hostile perspective doesn’t hold up.

Here’s what the report does say. It forecasts five different scenarios:

If Congress passed nothing at all
If Congress passed the American Rescue Plan (ARP) only
If Congress passed the ARP and the bipartisan infrastructure deal only
If Congress passed the ARP and the Democrats’ reconciliation bill only
If Congress passed the ARP, the bipartisan deal, and the reconciliation bill

We are currently in Scenario No. 2. Congress passed the ARP in March, and it’s been enacted as law. Biden wants Scenario No. 5. He has already signed the ARP, and he would like to sign both the bipartisan deal and the reconciliation bill into law, too.


So let’s compare Scenario No. 2, the trajectory we are currently on, with Scenario No. 5, the trajectory Biden wants.

Moody’s forecasts annual GDP growth rates out to 2031 in the report. The payoffs for Scenario No. 5 are quick. It says that next year’s GDP growth rate would be 5.3 percent — a whole percentage point higher than under Scenario No. 2. But by 2025, the growth rates equalize at 1.8 percent. Then, from 2026–2029, the growth rate under Scenario No. 5 is lower than the growth rate under Scenario No. 2. They equalize again in 2030 at 2.1 percent, and in 2031, Scenario No. 2 stays at 2.1 percent and Scenario No. 5 ticks up to 2.3 percent.

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The nonfarm employment numbers tell a similar story. Moody’s forecasts that the short-term payoff would be significant and that jobs would initially increase at an increasing rate under Scenario No. 5. Scenario No. 5 leads to 300,000 more jobs in 2022, 900,000 more jobs in 2023, and 1.5 million more jobs in 2024 than Scenario No. 2 does. The gap between those two scenarios peaks in 2027, with a 2.6 million-job advantage for Scenario No. 5. But then Scenario No. 2 starts catching up. From 2028 onward, it would add more jobs per year than Scenario No. 5. The forecast ends in 2031 with Scenario No. 5 in the lead by 2.2 million jobs, but with Scenario No. 2 still adding more jobs per year.

How does that translate to the unemployment rate? Moody’s projects that under Scenario No. 2, unemployment would be at 4.4 percent next year and basically stay there through 2031. Under Scenario No. 5, unemployment would be 4.1 percent next year, then continue to decline until 2024, when it would bottom out at 3.5 percent. After that, unemployment would tick up slightly and remain in the high 3s, arriving at 3.9 percent in 2030 and 2031.



The labor-force-participation rate, the last metric Moody’s forecasts, is unlike the others in that there is hardly any difference between both scenarios right away. In fact, the labor-force-participation rate is identical in 2022 (62.6 percent) and in 2023 (62.7 percent). The numbers diverge in 2024, but only barely, and by 2031, the labor-force-participation rate is only 0.5 percentage points higher for Scenario No. 5 (62.9 percent) than it is for Scenario No. 2 (62.4 percent).

To do these forecasts, Moody’s has to make a lot of assumptions. We don’t have legislative text for either infrastructure proposal in Scenario No. 5. The Scenario No. 2 forecasts are probably more trustworthy since they are based on things that have already happened. For all the forecasts, Moody’s assumes the Fed sticks to its current monetary-policy framework, that the pandemic will continue to wind down, and that “no other significant fiscal policy changes” take place.


As a straight-up, ceteris-paribus forecast, the Biden administration should be careful how much it touts this report. Here’s the logic the report invites: We can do absolutely nothing beyond what we’ve already done and have a reasonably good economy by next year that will stay reasonably good into the future. Or, we can spend more money than has ever been spent by the federal government in one year in American history and have a better economy next year and a slightly better economy in the long run. It’s hard to believe there wouldn’t be cheaper ways to get the same or better results.

The Moody’s report says that by doing nothing more than has already been done, unemployment will be in the mid 4s by next year and stay there for the decade. That’s not bad. The unemployment rate has rarely been below 4 percent in American history. It’s hard to get it much lower than that because no matter how well the economy is doing, people will still voluntarily quit their jobs and be unemployed for a bit while they find a new one.


The labor-force-participation rate had been declining fairly steadily since 2000 when it peaked at about 67 percent. It seemed to have flattened out at around 63 percent starting in 2014. So, according to Moody’s, Biden’s massive “Build Back Better” plan will yield a labor-force-participation rate . . . exactly where it was from 2014 to 2019.


Biden has been fond of saying that his infrastructure plans are a “generational investment” and regularly promises a transformative effect on the economy, which ostensibly justifies the unprecedented levels of spending. The Moody’s report does not show any such transformation. It shows a modest improvement on the status quo, and that’s based on a lot of assumptions that may not hold.

We shouldn’t spend $4.7 trillion right now, for the reasons Phil lays out here. But if we’re going to spend more money than has ever been spent on any single piece of legislation in American history, there must be better uses for the money than the slight improvements that Moody’s is forecasting.


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