The real reason Biden gets little credit for the economy

From: POLITICO's Morning Money - Thursday Aug 10,2023 12:03 pm
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POLITICO Morning Money

By Sam Sutton

Presented by Structured Finance Association

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QUICK FIX

The Labor Department will report the consumer price index for July at 8:30 a.m. And while economists expect the headline annual inflation number to be higher than in June, some White House allies are pointing out that the overall trend is still heading in the right direction.

The battle against rising consumer prices is at the forefront of President Joe Biden’s economic messaging. And while there are signs that Americans are more optimistic than in 2022, they’re still feeling pinched.

Consumer sentiment is “still below our pre-pandemic levels,” Joanne Hsu, who oversees the University of Michigan’s widely cited consumer survey, told MM. “I don't think that's terribly surprising given that prices still remain quite high.”

The reality is that people give more weight to their ability to stretch a paycheck than to any federal data point on inflation. Sure, the cost of key goods and services has started to stabilize, but prices at grocery stores, restaurants and the gas pump are still much higher than they were before Covid-19 rocked the economy. That may partly explain why voters give Biden such low marks on his handling of the economy.

A pound of ground coffee will run you 40 percent more than it did in February 2020. The cost of a pound of white potatoes jumped by 30 percent during the same period. Even within the big basket of meat, poultry, fish and eggs — where prices are not just slowing, but falling — Americans are paying 25 percent more than they were at the start of the pandemic.

Gas prices are up about 30 cents per gallon compared to a month ago, according to AAA. And while Wednesday’s average price of $3.83 is substantially lower than the $4.03 that Americans were paying a year ago, that’s a dollar-plus more than during an August road trip pre-pandemic.

Of course, there’s a reason why food and gas prices aren’t factored into the “core” inflation gauge that’s favored by the Federal Reserve when it weighs monetary policy decisions. Both are volatile and subject to external shocks. But they also represent a big chunk of household expenses and are among the items that consumers notice the most.

As Omair Sharif of Inflation Insights said in a research note: “Most of what people spend their money on continues to go up in price, perhaps explaining why consumers' aren't as optimistic as economists about the recent disinflationary data.”

For Democrats, the political consequences of that dynamic are very real and increasingly urgent. Just take a look at Florida.

 

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Annual inflation in the Miami and Tampa metro regions hovered around 7 percent in May, according to the Labor Department. The next closest region in the nation was San Diego at 5.2 percent.

The battle with inflation poses unique challenges to local Democrats who are trying to reverse Republican inroads in blue strongholds. Republican Gov. Ron DeSantis won majorities in both Miami-Dade and Tampa’s Hillsborough counties in 2022 just two years after Biden carried both.

When it comes to economic messaging, “any 6-year-old can tell you it's easier to break something than it is to build something or fix something,” said Robert Dempster, the chair of the Miami-Dade Democratic Party.

“It’s harder to message that you're doing work, you’re on the right path and you’re getting results — especially when everyone's not necessarily feeling like their lives are exactly as they should be,” he said.

Ione Townsend, the leader of the Democratic party in Hillsborough County — a longtime bellwether for national elections — says she’s spending “twice as much in the supermarket as I used to.”

Selling the public on an improving economy will require Democrats to first identify with the voter and acknowledge how inflation has impacted them, said Townsend. If you don’t do that, it’s harder to convey what policies are being pursued to improve their pocketbooks.

“As Democrats, we have not done such a great job on messaging,” she said. And while she’s optimistic the party can sway voters on the strength of the economy, “that's threading a needle and and it's got a very small eye.”

IT’S THURSDAY — Shout out to all the readers who shared their appreciation of peak tomato season. Send tips, gossip and suggestions to Sam at ssutton@politico.com and Zach at zwarmbrodt@politico.com.

 

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Driving the day

Jobless claims data for the first week of August will be out at 8:30 a.m. …House Oversight and Accountability holds a hearing in Fort Myers, Fla,. on the Hurricane Ian response at 10 a.m.

Outbound arrives — Our Gavin Bade reported that Biden on Wednesday moved to establish new rules limiting American investments in high-end Chinese technology sectors, “a long-awaited effort meant to stop U.S. capital from financing Beijing’s military development.”

Key context: The rules will only apply to new investments — which means we’re unlikely to see many fire sales of Chinese portfolios from private equity and venture firms — and will go into effect following a comment period for industry,

Over on the Hill: Senate Banking Chair Sherrod Brown (D-Ohio), one of the architects of outbound language included in the defense authorization bill, said in a statement that the administration must implement this order swiftly to ensure that U.S. corporate investment doesn’t help China develop technology that will be used against us.”

House Financial Services Chair Patrick McHenry (R-N.C.) and Rep. Blaine Luetkemeyer (R-Mo.) issued a joint statement praising Biden for taking “a more thoughtful and targeted approach than initially reported.”

 

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Bank mergers — Victoria Guida reports that Brown “and other Democrats on Wednesday urged Federal Reserve officials to heighten their scrutiny of bank mergers that could affect the stability of the financial system.”

Crypto in the Courts — Our Declan Harty: “The SEC is moving to appeal a federal judge's ruling that certain sales of the cryptocurrency token XRP did not violate U.S. securities laws, a decision that has been hailed throughout the digital assets market as a signature win over the agency.”

Where regional inflation is improving — Bloomberg’s Mark Niquette and Augusta Saraiva: “No place in the US has put inflation in the rearview mirror quite as fast as Minneapolis … That’s largely due to a region-wide push to address one of the most intractable issues for both the Fed and American consumers: rising housing costs.”

In the markets

Why the Fitch downgrade matters — The WSJ’s Greg Ip: While yields didn’t climb after the S&P lowered the U.S. rating in 2011, after Fitch downgraded, “bond yields rose. That suggests Fitch’s action deserves our attention, not because it tells us anything new but because it joins the stack of evidence of how profoundly different, and risky, the nation’s fiscal situation is now.”

— The WSJ’s Telis Demos:Banks’ Problems Aren’t Over, According to the Bond Market

Diversity slows — Reuters’s Ross Kerber: “Boards of S&P 500 companies made recruiting directors with financial expertise their top priority over the past year, slowing boardroom gains for minorities.”

 

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Fly Around

It’s working so well over here — Our Hannah Brenton: “Nigel Farage’s rabble-rousing cry against ‘woke capitalism’ is providing a roadmap for Euroskeptic political parties across the continent seeking to rally their base against an establishment they want to portray as out of touch with real people’s worries.”

China Deflation — Bloomberg: “China’s consumer and producer prices fell together for the first time since 2020, a deflation cycle that could give global central banks some help in fighting inflation in their own countries but signals a worsening outlook in the world’s second-largest economy.”

 

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When loans are bundled together – a process called securitization – the result is less risk and lower interest rates for American families and small businesses. Securitization provides $15.6 trillion in financing and last year funded over half of U.S. household debt. Members of the Structured Finance Association give individuals and businesses access to essential credit at a lower price through securitization. Learn more at www.structuredfinance.org.

 
 

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