Very unpopular despite growth and employment

To the untrained eye, Joe Biden leaves office with an impressive economic record. Employment is strong, gross domestic product is increasing, and consumer spending remains at a strong pace.

There’s just one problem, and it’s the one that will forever stain Mr. Biden’s legacy, the one that sank him and his party politically, and the one he will be remembered for forever.

Inflation and its strain on household budgets, especially those with lower incomes, dwarfs all the other good things that have happened on Biden’s watch. Even though the pace of inflation has slowed significantly from its peak in mid-2022, consumers, investors and business owners continue to cite it as their most pressing problem.

“Biden inherits an economy that was weak due to the pandemic and leaves behind a strong economy,” said Mark Zandi, chief economist at Moody’s Analytics. “That said, many Americans are hurt and feel deceived.”

So even if the unemployment rate is dramatically lower than when he took office, even if the growth rate is 3%, and even with an economic situation that government officials say is the envy of the world, The economic story is as follows. The unfortunate ending comes as President Donald Trump prepares to return to the White House on Monday.

“To me, that’s the lasting legacy and differentiating factor between the two administrations,” said Joseph LaVogna, chief U.S. economist at SMBC Nikko Securities and senior economist in the first Trump administration. said. “Inflation under President Biden was 2.5 times higher than under President Trump. This was essentially the key catalyst for a return to Trump’s policies of very good growth and low, stable inflation.”

Biden left office with an overall approval rating of just 36%, the lowest approval rating of his entire presidency, and only 33% approval for his handling of the economy, according to a CNN poll.

Looking at different data points can help tell the story of inflation and how it is reflected in perceptions about the economy as a whole.

Biden by the numbers

In fact, the cumulative inflation rate measured by the Consumer Price Index during Trump’s first term from 2017 to 2021 was less than 8%. For Biden, it was 21%. It doesn’t seem to matter that the economy expanded in real terms by 11% under Biden, compared to 8.6% under Trump. Inflation peaked at more than 9% in June 2022 and has remained above the Federal Reserve’s 2% target every month since March 2021.

As prices for a variety of goods and services rise and remain high, wages are struggling to keep up. Even if it rebounds in 2024, the 19% increase in average hourly wages under the Biden administration will still be below the rate of inflation.

As a result, wage and price disparities have led to a 6% decline in consumer confidence under Biden compared to when he took office, as measured by the widely followed University of Michigan Sentiment Survey. This is because when Mr. Biden took office in January 2021, the economy was still under the influence of the new coronavirus, and many people missed the holiday season in late 2020 due to the spread of the Omicron variant. Considering he was choosing to spend time away from his family, that’s saying something.

Why are consumers feeling so depressed?

After all, household net worth has soared and consumers continue to spend, even though the price of eggs has increased 180% in four years. Retail sales rose more than 20% and household net worth now stands at $169 trillion, up 28% from the end of 2020, according to Federal Reserve data.

A major contributor to household balance sheets is the meteoric rise in stock and real estate prices, even if they are volatile.

Since Biden took office, tech company stock prices have risen higher than ever, backed by advances in artificial intelligence. The Dow Jones Industrial Average alone rose more than 40%, and the Nasdaq Composite Index, heavily weighted by Silicon Valley high flyers, soared nearly 50%.

According to the Federal Reserve, home prices rose 24% during the same period, and household real estate values ​​rose 42%.

Still, rising prices and the resulting rise in borrowing rates are making the dream of homeownership increasingly difficult to achieve. Typical 30-year mortgage rates are currently over 7%, more than double what they were in January 2021.

The surge in wealth, particularly in the stock market, has also had disproportionate benefits, with benefits skewed primarily to those with the resources to buy stocks.

According to Federal Reserve data, the share of the richest 1% of total net worth was 30.8%, the highest level in about three years. Similarly, just under 50% of all stock market-related assets are controlled by 1% of owners, and that number has gradually increased over the past few years. Only 1% of the bottom 50% of income earners own stock market assets, but that number has actually doubled during the Biden administration.

The various indicators all seem to be tied to the question of inflation and how we got here.

historical issues

Economists and policymakers diagnose the problem similarly, with some deviations. The imbalance between supply and demand at the beginning of the pandemic hit supply chains, raising the cost of goods rather than services. Trillions of dollars in fiscal and monetary stimulus aimed at stemming the damage from the coronavirus have exacerbated the problem by pumping too much money into too few products. Finally, the monetary response, first in the form of lower interest rates and then higher ones, which even Fed officials acknowledged, helped push prices even higher.

Biden has announced fiscal bullets for the post-COVID-19 economy, including the controversial $1.9 trillion American Rescue Plan and the Inflation Control Act of 2022, which critics say has increased the burden of inflation. But supporters say the measure provided critical infrastructure and climate change mitigation spending. It will benefit you for years to come.

“We’re experiencing very good growth and the labor market is pretty strong,” LaVogna said. “The question is, how much does it cost?”

Indeed, the labor market is so strong that it has created millions of jobs as employers seek to address their own supply-demand mismatches, with open positions at one point reducing the number of available workers by two. They were ahead by a 1-to-1 margin. In the Biden economy, the unemployment rate has fallen by more than 2 percentage points and appears to have stabilized recently, although it will rise sharply in mid-2024.

But again, it all seems to come back to inflation.

The cost LaVogna alluded to will come in the form of a bloated federal budget, with the deficit reaching $1.8 trillion in 2024 and much more in 2025 to cover $36.2 trillion in debt. has reached a level exceeding that of Taxpayers spent more than $1 trillion in debt interest alone last year and are expected to pay about $1.2 trillion this year, a total that exceeds all other taxes except Social Security, Defense, and Health Care. exceeds expenses.

The government’s budget deficit of 6% of GDP is unprecedented in an expanding economy. Before the 2008 financial crisis, the United States hadn’t experienced a shortfall this large relative to its total output since 1945, when it was trying to escape the economy of World War II.

And that tab will be passed on to future generations burdened with today’s debts and budget deficits.

“It’s a problem, a big problem,” Zandi said.

In fact, much of the job growth occurred in government and health care, linked to expansionary fiscal policy, and leisure and hospitality, which took until May 2024 to replace jobs lost due to COVID-19. It is.

Despite the challenges, most officials say the U.S. economy is healthy.

Zandi said his customers around the world often ask him what is the “secret sauce” that keeps the United States so vibrant compared to other countries around the world. Federal Reserve Chairman Jerome Powell, who has frequently said the U.S. fiscal path is “unsustainable,” said he would receive similar questions.

“At every international conference I attend, the conversation is about how well the United States is doing,” Powell said at a press conference in December. “If you look around the world, there’s a lot of low growth and we’re still battling inflation. So we feel very good about where the economy is and how the economy is performing, and we want to keep it that way. There is.”

But uncertainty about where the Fed will go will be a cloud hanging over Trump’s economy.

The central bank raised its key borrowing rate by 5.25 percentage points in an effort to combat inflation, but later cut the rate by 1 percentage point as officials began to feel more comfortable with the direction of inflation. However, there is considerable uncertainty about what will happen from here, with markets cautiously pricing in another quarter-point or half-point reduction for the remainder of 2025.

As Biden leaves the White House, he leaves behind a myriad of questions about what could have been done to make things better and how things could easily have gotten worse.

“Economists looking at this 20 years from now will see this as a pretty amazing performance,” Zandi said. “The story here is not over yet. But my sense is that history will judge this period to be one that follows future crises.”