President Biden and his aides are basking in what is arguably the best run of economic data to date in his presidency. Inflation is cooling, business
President Biden and his aides are basking in what is arguably the best run of economic data to date in his presidency. Inflation is cooling, business investment is rising, job growth is powering on and surveys suggest rising economic optimism among consumers and voters.
Polls still show Mr. Biden remains underwater on his handling of the economy, with voters more likely to disapprove of his performance than approve of it. Yet there are signs that voters may be brightening their assessment of the economy under Mr. Biden, in part thanks to the mounting effects of the infrastructure, manufacturing and climate bills he has signed into law.
The run of positive economic news comes as his administration looks to credit “Bidenomics” for a sustained run of positive data.
The economy grew at a 2.4 percent annual rate in the second quarter of the year, handily beating economists’ expectations, the Commerce Department reported last week. Price growth slowed in June even as consumer spending picked up. The Federal Reserve’s preferred measure of year-over-year inflation, the Personal Consumption Expenditures Index, has now fallen to 3 percent this year from about 7 percent last June — easing the pressure on Mr. Biden from the economic problem that has bedeviled his presidency thus far.
And in less visible but significant ways, there are signs that Mr. Biden’s signature economic policies may be starting to bear fruit, most notably in a steep rise in factory construction. Government data released Tuesday showed that boom continued in June, with spending on manufacturing facilities up nearly 80 percent over the past year. The manufacturing sector as a whole has added nearly 800,000 jobs since Mr. Biden took office and now employs the most people since 2008.
“The public policy changes that have been put in place over the past two years are now starting to show up in the data,” said Joseph Brusuelas, chief economist at RSM. He said the increased investment was “undoubtedly linked” to government policies, in particular the CHIPS Act, which aimed to promote domestic manufacturing, and the Inflation Reduction Act, which targeted low-emission energy technologies to combat climate change.
As Mr. Biden gears up for his re-election campaign, perhaps what is most encouraging to him is that consumer confidence is rising to levels not seen since the early months of his tenure in the White House, before inflation surged. Measures by the University of Michigan and the Conference Board suggest consumers have grown happier with the current state of the economy and more hopeful about the year ahead.
That change in attitude may reflect an underlying economic reality: The combination of cooling inflation, low unemployment and rising pay means that American workers are seeing their standard of living improve. Hourly wages outpaced price gains in the spring for the first time in two years, giving consumers more purchasing power.
National opinion polls still show a sour economic mood — but it appears to be improving slightly.
In a new New York Times/Siena College poll, 49 percent of respondents rated the economy as “poor,” compared to 20 percent who called it “excellent” or “good.” That’s an improvement from last summer, when another Times/Siena poll found 58 percent of Americans called the economy “poor” and just 10 percent rated it “excellent” or “good.”
Administration officials attribute the economy’s strength, particularly in the labor market, to the direct aid to individuals, businesses and state and local governments that was included in the $1.9 trillion stimulus package that Mr. Biden signed into law in 2021.
Economists generally blame that same stimulus package for some of the rapid spike in inflation that ensued largely after its passage. But the recent moderation in price growth is emboldening officials to cite the bill as more of a positive factor, saying it helped keep consumers spending and businesses operating, speeding the return to a low unemployment rate.
“The American Rescue Plan was designed for both getting the economy back up and running, but making sure there was enough wiggle room to deal with challenges that could come down the pipeline,” Heather Boushey, a member of Mr. Biden’s Council of Economic Advisers, said in an interview. “And that has been, I think, very, very successful in getting people back to work. This has been the sharpest recovery in decades, in terms of job creation. We have outperformed our economic competitors.”
Economic officials inside and outside the administration warn risks remain as policymakers seek to achieve a so-called “soft landing,” bringing down sky-high inflation without triggering a recession. And many Republicans dispute the president’s claims that his policies have bolstered the economy. They note inflation remains well above historical averages and that for many American workers, wage gains under Mr. Biden have failed to keep pace with rising prices.
“Even if inflation ‘is less,’ those prices are not going down,” Gov. Ron DeSantis of Florida, a Republican presidential candidate, told Fox News this week. For a middle-class family, “affording a home is prohibitive,” he said. “If you look at the median income compared to the median home price, there’s a bigger gap than there was when the financial crisis hit after the big housing increase in 2006 and 2007. Cars are becoming less affordable; people feel that squeeze.”
Some forecasters, including at the Conference Board, continue to predict the economy will fall into recession by the end of the year. They cite indicators that have frequently signaled downturns in the past, most notably the rapid decline in lending from both small and large banks.
Tightening credit conditions, as reported this week by the Fed, “are consistent with G.D.P. growth slowing to recession territory in coming quarters,” researchers at BNP Paribas wrote this week.
And yet, most independent economists agree that the U.S. recovery has been stronger than expected. They are less united on how much credit Mr. Biden’s policies deserve for it. The decline in inflation, they say, is mostly the result of the Fed’s aggressive efforts to combat it, helped along by some good luck as oil prices have fallen and the pandemic’s disruptions have faded.
The resilience of the labor market — and the strength of the broader economy — is almost certainly the result, at least in part, of the trillions of dollars of aid that the federal government pumped into the economy in 2020 and 2021, which helped prevent the widespread bankruptcies, foreclosures and business failures that stymied the recovery from the Great Recession a decade and a half ago. But much of that came under President Donald J. Trump, and economists disagree about how much Mr. Biden’s stimulus package specifically helped the recovery.
Still, recent economic developments have seemed to bear out one of the arguments that Democrats made early in Mr. Biden’s term: that the risks of doing too little to help the economy outweighed the risks of doing too much. Too little aid could leave the U.S. economy facing another “lost decade” of slow growth similar to the one that followed the last recession. Too much aid might cause inflation — but that, unlike slow growth, is a problem the Fed knows how to solve.
Risks remain in the months to come. Inflation could pick back up, particularly if oil prices continue to rise, as they have in recent weeks. The job market could deteriorate, leading to a sharp rise in unemployment. Many forecasters still expect a recession to begin this year or early next.
Drawing a straight line from government policies to economic outcomes is always difficult, especially in real time. But recent economic data has, at the very least, looked consistent with the Biden administration’s theory of how its policies would affect the economy.
Administration officials point in particular at what they have begun referring to as the “hockey-stick graph”: a steep upward climb in investment in factory construction over the past two years, which they attribute to spending and tax incentives in several bills Mr. Biden championed and signed into law. Those include bipartisan measures to boost infrastructure and advanced manufacturing, and a bill passed last year by Democrats when they controlled Congress that focused heavily on spurring new development in low-emission energy technologies to combat climate change.
Private-sector analysts have largely agreed that policies have played a significant — though hard to quantify — role in the manufacturing construction boom in recent months. That, in turn, has helped to fuel a surprising increase in business investment more broadly, which helped lift economic growth in the spring even as consumer spending slowed.
Even Treasury officials acknowledge significant risks to the economy in the months to come. Privately, many of Mr. Biden’s aides express at least some uncertainty about whether a soft landing is now assured.
But the combination of solid growth, low unemployment and cooling inflation has made forecasters increasingly optimistic that the United States can avoid a recession that many of them once thought was inevitable.
“You’ve got to look at that and say the probability of a soft landing has gone up,” said Jay Bryson, chief economist at Wells Fargo.
www.nytimes.com