Jobs Boom But Inflation Lingers And Household Finances Deteriorate

Topline

As President Joe Biden kicks off his reelection bid, his campaign will need to reckon with an economy that’s fallen into a much more precarious state than when he inherited it—with inflation still reeling from 40-year highs, household finances deteriorating and the job market (long one of Biden’s favorite economic talking points) starting to show signs of weakness.

The economy will be top of mind for voters during the 2024 election.

AFP via Getty Images

Key Facts

🟢⬆️ Stock market: The S&P 500 hit an all-time high during Biden’s first year as president and is up 9% since he took office despite a steep bear market last year—but that’s still far less than the index’s 182% and 67% surges during the tenures of his predecessors Barack Obama and Donald Trump, respectively.

🔴⬇️ Inflation: The most headline-driving economic development under Biden, the U.S. consumer price index surged from 1.4% on an annual basis in January 2021 to 5% in March, reflecting an overall increase of 15%—far more than the 10.9% increase in average wages during the timeframe.

🟢⬆️ Jobs: The job market has remained one of the economy’s strongest pillars during Biden’s presidency, with the unemployment rate slipping from 6.3% in January 2021 to a 54-year low of 3.4% in January; however, widespread layoffs in recent months may be starting to have an impact, with last month marking the worst job growth since 2020 as the unemployment rate clocked in at 3.5%.

🔴⬇️ Household financial health: Even with high employment and solid wages, Americans’ bank accounts are largely in poorer shape now than they were before Biden: Americans saved only 4% of their disposable income in the final quarter of 2022 compared to 14% two years prior, a worrisome development as household debt surged 16% to $16.9 trillion during the period and as poverty rates reached the highest level since 2018 in 2021, the last year for which Census Bureau data is available.

🟢⬆️ Big picture economy: Headline economic output was strong during Biden’s watch, as U.S. gross domestic product rose 20% to $26.1 trillion from the last quarter of 2020 to the same period last year—buoyed largely by outsized gains in manufacturing and spending on entertainment and leisure.

🔴⬇️ Gas prices: Gas prices soared to their highest levels ever last year amid shock from Russia’s invasion from Ukraine, and though the price at the pump has come down dramatically, the $3.66 average cost per gallon last week was 54% higher than the week preceding Biden’s inauguration despite crude oil prices slipping.

Key Background

Inflation soared last summer to its highest level in 41 years, peaking at above 9% on an annualized basis, with pandemic-induced supply chain bottlenecks and macroeconomic shocks from the war in Ukraine and sanctions on Russia largely fueling the spike in prices. Skyrocketing inflation spurred the Federal Reserve to dramatically increase interest rates, calming price increase but dragging down stock prices and upping borrowing costs. Nevertheless, Biden has latched onto the job market’s resilience as a key economic talking point, declaring last year the labor market was “the strongest it’s been since just after World War 2,” and saying Americans “can tackle inflation from a position of strength.”

Tangent

Fighting the pandemic with heightened economic stimulus measures—one of Biden’s biggest campaign promises in 2020—has proven to be costly for the government, and critics argue the spending has only made inflation worse. National debt spiked 13% to $31.4 trillion from the end of 2020 through the end of 2022. The U.S. is hovering at its debt limit, setting up a messy political fight as the government is at risk of failing to pay its debts as soon as this summer without fresh legislation.

Chief Critic

Shortly before the 2020 election, Trump warned Biden would cause an “economic disaster of epic proportions” resembling a “depression.” Trump, who announced in November he’d run for president once again, has not seen his forecast come through. However, the Fed earlier this month predicted a “mild recession” will come by year’s end—joining a slew of experts cautioning that surging borrowing costs will ultimately bring economic growth to a halt.

Contra

A recession is “not at all inevitable,” Mark Zandi, the chief economist at Moody’s Analytics, told Forbes in a phone interview. The U.S. can avoid a recession “with a little bit of luck and some reasonably good policymaking because the fundamentals of the economy are good.” Zandi also blamed high inflation on supply chain constraints and Russia’s invasion of Ukraine, which led to a staggering surge in energy prices last year. Inflation is “high everywhere in the planet” and has “little to do with Biden’s policies,” he said.