Gasoline prices have gone President Biden’s way since peaking at $5 a gallon in June. Since then, the price has plummeted to $3.80 a gallon, neutralizing what looked like a disastrous liability for Biden and his fellow Democrats.
Still, Biden’s party still looks set to lose control of Congress in the Nov. 8 midterm elections. The Supreme Court’s defense of Roe v. Wade abortion protection in June should have been a game-changer for Democrats, boosting turnout among angry voters who want a Democratic Congress to counterbalance the new conservative court. In recent weeks, however, abortion has receded as a ballot issue, displaced by that old tenacity, economy, stupidity.
A new analysis from Moody’s Analytics singles out real disposable income and inflation-adjusted home values as the two economic indicators that best predict the fate of the incumbent party in the midterm elections. Home values should be a democratic advantage. Prices are up 13% year-on-year, while inflation is 8.2%, with real, inflation-adjusted growth of about 5%. That would normally be great news for incumbents.
[Are you voting Republican because of the economy? Tell us why.]
But COVID-related distortions are undermining the value of a hot housing market for incumbent Democrats. As pandemic demand for real estate skyrocketed in 2020 and 2021, rising prices came as a surprise to sellers and owners. Buyers, however, faced sticker shock, with many rising in price. Now they’re getting hit as the Fed raises interest rates to fight inflation. Rising rates and still-high prices have led to an affordability crisis, with Oxford Economics’ housing affordability index at its worst level since 2007, the peak of the last housing bubble. A booming housing market worries voters rather than comforting them.
As for real earnings, by some measures they are near record lows. Real earnings fell 4.5% from a year earlier on a seasonally adjusted basis, according to government data. The average quarterly change going back to 1970 is a 3.1% increase. So this is a particular pain point for consumers right now. This table tells.
To understand what’s happening to earnings, ignore the unprecedented booms and busts that occurred in 2020 and 2021 as workers flooded out of the labor force and then returned. Instead, notice where real earnings have fallen as the labor market has returned to normal. Real incomes have fallen more than ever over the past 60 years, including a period in the 1970s and early 1980s when inflation was even higher than it is now. Wages will likely catch up with inflation over time, but right now the typical worker is lagging badly.
Here’s another way to see the problem for Democrats. For the Yahoo Finance Bidenomics Report Card, we track real income and five other economic indicators under Biden compared to previous presidents going back to Jimmy Carter in the 1970s at the same point in their presidencies. Biden gets high marks for job creation, but he gets the lowest marks for average hourly earnings among the eight presidents. Again, this is because inflation is higher than nominal wage growth, which erodes the purchasing power of the typical worker.
High gas prices have never been Americans’ biggest problem
Biden has been obsessively focused on gasoline prices, just recently announcing that, for example, the government would continue pumping oil from the Strategic Reserve until December to help lower prices. Biden’s approval ratings have fallen as gas prices hit new highs earlier this year, then improved as gas prices fell.
But voters have economic concerns beyond gas prices, because they should. Housing and food costs make up a much larger portion of the typical family budget than gasoline. The prices of food products increased by 13% year-on-year. Housing costs increased by 8%. Nominal profit increased by only 5%. Wages do not correspond to price increases.
While voters have shown less concern about gas prices in the past few weeks, they remain nervous about the overall economy. “Americans’ views of the nation’s economy remain overwhelmingly negative,” Pew Research reported on Oct. 20, with its latest poll showing that 82% of voters rate the economy as poor or fair. Only 17% say the economy is excellent or good. Seventy-three percent say they are very concerned about the price of food, slightly more than 69 percent are very concerned about the price of gasoline.
Gallup polls have shown that the economy is voters’ most important issue, of course, year-round. And there has been little change in inflation concerns despite falling gas prices. In May and June, 18% of voters said inflation was their top concern. in September it was 17%, which is hardly an improvement. The drop in gas prices has not convinced anyone that general inflation is receding. The share who say abortion rights are the most important issue, meanwhile, is down to just 4%, down from 8% in July.
Biden probably can’t do much more to combat food inflation or other increases in the past few months that have angered voters. The President’s tools are limited to begin with, and it is the Federal Reserve’s job to fight inflation through monetary policy. Fed rate hikes are likely to do the trick, eventually. But it will be too late to help Democrats in 2022. Maybe by 2024?
Rick Newman is a senior columnist Yahoo Finance:. Follow him on Twitter at @rickjewman:
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