This week in Bidenomics: Limping to the midterms

The economic news this week illustrates the core problem President Biden has with voters: Many of the numbers are good, but it doesn’t matter. Americans are bummed out, and Biden can’t change that.

Total economic output grew at a 2.6% annualized rate in the third quarter, a reassuring improvement from the prior two quarters, when GDP growth was slightly negative. Those two consecutive quarters of negative growth triggered a lot of recession speculation over the summer, but the third-quarter rebound pretty much puts that to rest. The economy is not in a recession, as Biden has been insisting.

Americans don’t care what a GDP report says, however. They care about whether they’re getting ahead or falling behind, and this is where Biden and his fellow Democrats, who control Congress, are in trouble. Inflation is still at 8.2%, while personal income is growing at just 4.3%. That means the typical paycheck buys less. It doesn’t take a lot of math for workers to realize inflation is pushing them backward.

In the final days of the midterm election campaign, Biden is hitting campaign hotspots and trying to remind voters of what’s going right. Gasoline prices are down $1.25 per gallon from the peak in June, to around $3.75 on average. The labor market remains very strong. Manufacturing employment is at the highest level since 2008, and some production that went overseas years ago seems to be returning to American shores. Laws Biden signed during his first two years in office should boost employment and help lower prices during the next several years.

Rampant recession fears

All true. But none of it is enough to help Democrats now. The withering effect of inflation on living standards has pushed consumer confidence close to all-time lows. The University of Michigan’s confidence index is roughly equal to the lowest levels of the Great Recession in 2008 and 2009, which is remarkable, because the economy was on the verge of a depression then. We’re not even in a recession now.

Confidence has improved slightly since June, when inflation and gas prices both peaked for the cycle. But consumers’ outlook has actually worsened, with greater concern now of a recession in the near future. That’s consistent with many economic forecasts that have grown gloomier, as economists begin to think the odds of a recession by early 2023 are 50-50 or higher. The GDP report, despite a solid headline number, reinforces that view. Trade distortions accounted for almost all the gain, and that won’t likely be repeated during future quarters. Other important categories were weak, a trend economists expect to worsen as the Federal Reserve keeps cranking interest rates higher.

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Biden must feel exasperated. Last year he signed a meaningful infrastructure bill, which voters favor—something Biden’s predecessor, President Trump, failed to get done, despite repeated efforts. Biden signed the CHIPS+ Act this past summer, which is meant to cement America’s technological advantage over China, and also has bipartisan support. The Inflation Reduction Act Biden signed this summer did not get any Republican backing, but it will still direct massive amounts of government support to green energy and other efforts to reduce carbon emission, which Americans generally support.

Despite all this, Democrats are stumbling into a Nov. 8 debacle. Most polls in key House and Senate races have tilted in the Republicans’ favor during the last few weeks. It would be a massive surprise if Democrats held onto the House, given their tiny five-vote majority and many factors working against them in 2022. The Senate looks like a tossup, with Democrats’ odds shrinking there as well, as polls tighten in key races Democrats need to win in Pennsylvania, Georgia, Arizona and Nevada.

In one sense, it would be a normal outcome if Democrats lose one or both houses. The president’s party almost always loses seats in the midterm elections, and Democratic majorities were wafer-thin to start with. They only control the Senate now because Donald Trump basically sabotaged the 2020 reelection prospects for both Georgia Republicans as he trashed election procedures and basically convinced some Republicans not to vote.

But Democrats have had some unusual advantages this year, which they’re on the verge of blowing. The Supreme Court’s reversal of the Roe v. Wade abortion protections seemed like it might give them an edge among Independents and moderate Democrats opposed to the move, but that edge appears to be evaporating. Donald Trump’s ongoing shenanigans might have helped too, given Trump’s endorsement of several far-right candidates. But Trump’s star is fading, amid never-ending legal troubles, and his influence, both positive and negative, is probably declining as well.

If Democrats thought social issues would trump economic ones this year, they made an unforgivable mistake, given that the economy is almost always the No. 1 voter concern. When there’s a problem such as high inflation, there can be no alternative.

Democrats may think liberal benefit programs such as the huge 2021 stimulus bill and Biden’s recent student-debt forgiveness plan are the kind of economic stewardship most Americans want. Voters seem poised to tell Democrats they’re wrong about that. Biden’s liberal bent as president has generated blowback from some voters who picked Biden in 2020 because they thought he’d be a moderate, but now feel duped. The 2021 stimulus law contributed to inflation. Student-debt relief was a clear effort to win votes among young people who might fail to show up and do their part on Nov. 8.

The midterms aren’t over, and polls foretelling the outcome could be wrong, as they were in 2016 and to a lesser extent in 2020. But the impending lesson for Biden seems to be that you can’t talk voters out of inflation. Still, he has to try.

Rick Newman is a senior columnist for Yahoo Finance. Follow him on Twitter at @rickjnewman

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