ECONOMY IS STILL ISSUE NO. 1
It’s been a big week for economic news — most of which has been bad news for Democrats’ prospects in the midterm elections.
Over the last several days, we learned that consumer confidence is near an all-time low, and that the United States is now in a technical recession. Further, the Federal Reserve significantly raised interest rates on Wednesday, which indicates that inflation remains a persistent — not transitory — concern for the central bank.
Despite Democrats’ best efforts to shift the national conversation away from inflation and toward issues like abortion rights, gun safety,and climate change, these recent developments make it clear that voters’ concerns about the economy will still dominate this year’s midterms.
Recent polling on this issue further underscores the political challenges for Democrats vis-à-vis the economy: while a majority (51%) of voters cite economic issues as their top concern, only 29% of voters — including just 17% of independents — approve of President Biden’s handling of the economy.
Indeed, economic pessimism is clearly widespread: on Tuesday, the Conference Board reported that the Consumer Confidence index declined for the third straight month, now at the lowest level since February 2021. Further, the Expectations Index — a measure of American’s short-term outlook for their personal income, as well as for business and labor market conditions — fell to the lowest reading since 2013.
Another widely followed gauge of how Americans feel about the economy — The University of Michigan Consumer Sentiment Survey – also hit the lowest figure ever recorded in June, and preliminary data this month showed little improvement.
According to the Consumer Sentiment Survey, Americans feel worse about the economy now than they did in 1980 when inflation was nearly 15%, worse than following the 9/11 terrorist attacks, worse than 2007-2009 during the financial crisis, and worse than in the spring of 2020 at the height of COVID-19 lockdowns and unemployment.
Moreover, on Wednesday, arguably the most important economic event of the week occurred, as the Federal Reserve announced its fourth interest rate hike of the year, raising rates by 0.75% to combat surging inflation that currently sits at 9.1% — a 40-year high.
Fed Chief Jerome Powell has pledged “to follow the data” when deciding how high to set rates with the goal of lowering inflation. However, the data the Fed uses to make its forecasts is problematically contradictory. For example, the U.S. economy experienced negative growth in the second quarter of the year; yet, the job market is strong, and the unemployment rate sits near historic lows at 3.6%. Likewise, Americans are historically pessimistic about the state of the economy, yet they continue to spend even in the face of record-high inflation.
This inconsistent data ultimately raises the risk that the Fed does too much and triggers a deep recession, or does too little and lengthens red-hot inflation — and thus, that this economic crisis is prolonged well beyond the midterms.
To that end, on Thursday, it was announced that the U.S. had fallen into a technical recession — as the GDP fell by nearly 1% in the 2nd quarter, which marks two consecutive quarters of negative growth — giving Republicans a new line of attack to use against Democrats in the midterms.
In an effort to preemptively circumvent these political attacks, the Biden administration published an awkward blog post on Thursday attempting to convince Americans that, despite meeting the technical definition of a recession, the United States is not necessarily fully in one.
This retort ultimately underscored that the White House is still struggling to connect with
the public about their economic anxieties and offer solutions to alleviate their concerns — a failure that will be the Democratic Party’s downfall in the midterms.
At this point, the administration’s attempts to tout its macroeconomic accomplishments such as low unemployment — as National Economic Council head Brian Deese did on Twitter earlier this week — are perceived as out-of-touch as Americans struggle everyday with higher prices.
As if the economic news released on Tuesday, Wednesday and Thursday wasn’t bad enough, on Friday, the June Personal Consumption Expenditure index (PCE) — the Fed’s favorite gauge of inflation, as it is the most broad-based measurement — will be made public.
Though many expect that the index will drop slightly from May’s 6.3%, if the report shows that inflation remains consistent — or even worse, if it rises — Democrats’ already slim chances of holding onto both chambers of Congress will be crushed.
While the Democratic Party was already facing an uphill battle to in November, taken together, these latest economic developments put the party at even greater risk of a historic rout.