The no-boom, no-bust economy is hitting Democrats in the US midterm elections
WASHINGTON, Nov 7 (Reuters) – Household cash is near record levels in the United States, with consumers using it to pack restaurants and planes and buy new cars. Jobs are there for the taking. Net worth is 30% higher than before the pandemic, especially for those in the bottom half.
And people were upset with President Joe Biden despite all that.
Tuesday’s midterm elections could put the brakes on a Democratic president with a Republican-controlled Congress, and polls and opinion polls show a gloomy mood on economic issues is pushing voters in that direction.
It is a fact of American politics that the party in the White House fights in congressional races held every two years between presidential contests.
The fact is that there is currently a fierce real-time discrepancy between the president’s approval rating of 40%. and broader economic conditions that are mixed at worst – with high inflation at the forefront for many, but also one of the strongest labor markets in decades and an unemployment rate of 3.7%. Overall, the economy is expected to grow in 2022, albeit slowly, after concerns earlier in the year that it had started to shrink.
Still, 56% of respondents to a recent Morning Consult poll gave the economy a poor rating, and the consumer confidence index “has been lower in recent weeks than it was during the 2020 COVID-19 lockdown.”
A CNN poll found that the vast majority believe the country is in a recession, even though by almost any standard it is not.
It’s a frustrating moment for Democrats, who have won several battles to deliver economic relief to people, including the recent student debt relief package, as well as broader investments in infrastructure and regional industries.
“The American people are starting to see the benefits of an economy that works for them,” Biden said in a speech in New Mexico last week, trying to balance perceptions of where things stand.
He spoke, however, at a time when anxiety about what lies ahead seems palpable with inflation so high it has offset wage increases for many of the Federal Reserve’s increasingly tight monetary policies, losses in the stock and housing markets and real risk , according to many economists, that a recession will occur in the next year.
WHO TO BLAME?
Republicans have made the economy their No. 1 issue, and accuse Biden and Democrats of fueling inflation with big spending packages, then ignoring the economic plight of American families in the face of rising energy and food prices.
“President Biden is desperate to change the subject from inflation, crime and open borders,” Senate Republican leader Mitch McConnell tweeted last week, after Biden devoted a speech to the threats that may face American democracy if some Republican candidates refuse to accept election losses. “Ask how the last two years have affected your family, then get out and vote!”
There is more than a little debate as to why prices are rising so quickly, more than 8% annually since September. Between former President Donald Trump and Biden, about $5 trillion in pandemic aid has been pumped into the U.S. economy since March 2020 — one reason the bank accounts are still open.
While that money still fuels demand, economists generally attribute much of the recent price rise to external supply shocks.
The causes of inflation, however, may not matter to voters who have consistently chastised politicians for raising the prices of daily necessities, especially food and gas. Food prices have risen at an annual rate of 11% since September, the fastest monthly pace since February 1979, when Jimmy Carter was in the White House. After hitting $5 a gallon last summer, the national average price of unleaded gasoline fell to $3.70 as of last week — but it’s still significantly higher than the $2.53 motorists paid in the week before Biden’s inauguration in January in 2021
However, key parts of the economy are business as usual.
The unemployment rate has averaged 3.6% since March — better than before the 2018 midterm elections under Trump, and indeed unmatched since the 1966 midterms. Until recently, wages for lower-wage workers have risen faster than inflation, and if anything, the Biden presidency has been a time of perhaps unparalleled labor, characterized by job-hopping and job openings far outstripping job seekers.
BEHAVIOR DIFFERENTLY? NOT YET
It has also been turbulent, reflecting the United States’ complicated response to the pandemic and a host of other dilemmas — a “polycrisis,” as some academics call it, that includes the outbreak of war in Europe and China still under “zero-Covid” lockdown.
Biden’s approval ratings were high at the start of his term, with stimulus checks still in place and child tax credits and unemployment benefits helping many families.
That’s all in the past.
Small businesses, for example, were among the biggest beneficiaries of government spending during the pandemic, but now favor Republican control of Congress even though only a third identify as members of the party, according to a recent survey of its members by the small business group Alignable.
Among their top concerns, more than half cited rising borrowing costs, raised by the U.S. central bank in a dynamic that also recalls the presidency of Carter, the inflation-ridden incumbent who lost re-election under a regime in which interest rates soared.
According to a recent Reuters-Ipsos poll, people still aren’t changing their daily lifestyles in response to inflation or the Fed, which has raised rates by 3.75 percentage points this year. One of the benefits of the large pile of cash that has been held back since the pandemic is that people can continue to spend despite higher prices.
Offered a list of behavioral changes in response to inflation, from lowering savings rates to canceling vacations or buying cheaper brands, 80% of respondents to that survey answered “none of the above.”
But a third of both Democrats and Republicans said they have put off “buying a home, office or other type” because of higher rates — decisions that could be uncomfortable for family plans for years to come. The average rate on a 30-year fixed mortgage recently hit 7% for the first time in 20 years, a shock especially to younger first-time home buyers.
Perhaps as important for politics, there is serious uncertainty about the future, something that appears to be behind the dip in consumer confidence surveys.
Confidence has fallen despite a general rise in wealth.
Since the start of the pandemic, including Trump’s last year in office and Biden’s first two, households have added $32 trillion to their wealth, an increase of roughly 30 percent, Fed data shows. The shares of the bottom 50% more than doubled.
But growth has stalled in the past year, and there appears to be little optimism left ahead of Tuesday’s election.
In a Reuters-Ipsos poll, strong majorities that included 70% of Democrats and 77% of Republicans said they were either no better or worse off financially than a year ago.
The gap between public views on the economy and the facts on the ground is “very wide,” said John Leer, chief economist at Morning Consult. But “there’s also a big disconnect in the underlying data. We’re getting strong job growth. GDP growth. But everything’s flashing red.”
Reporting by Howard Schneider Additional reporting by David Morgan; Editing: Dan Burns and Paul Simao
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