In which latest Gallup poll released on Wednesday, 4 in 5 adults rate the current economy as fair or bad, and more than three-quarters of Americans say the economy is getting worse. The resulting Economic Confidence Index has been falling since last July and is now worse than it was in April 2020, at the start of the pandemic.
Voters from both parties will hold President Joe Biden and Democrats responsible for whether things feel right or wrong, said Sarah Binder, a professor of political science at George Washington University.
“Slow growth — possibly still coupled with high inflation — inevitably makes it harder for the president’s party to win elections,” Binder said on Wednesday, before the latest figures were released. “With narrow majorities and Biden’s waning popularity, there is a strong risk that Democrats could lose control of both houses.”
The White House braced itself for criticism.
A senior administration official said in an interview on Wednesday that the quarterly slump was largely due to two technical factors — a sharp widening of the trade deficit from rising imports and a significant slowdown in inventory builds — and did not signal the economy is weakening.
Thursday’s report showed that the trade deficit dragged down first-quarter growth by 3.2 percent, while the contraction in inventory investment eased 0.84 percent.
Under the hood, the economy still looks very strong, the senior official said on Wednesday.
Final sales to domestic private buyers — a metric economists often point to as a true reflection of the underlying health of the economy — rose 3.7 percent, according to the latest report. Consumer spending increased by 2.7 percent, gross private investment increased by 2.3 percent and housing investment increased by 2.1 percent.
In fact, demand has been so strong that domestic production has been unable to keep up, forcing companies to import more goods from overseas, Stephen Stanley, Amherst Pierpont’s chief economist, said on Wednesday.
“This is what an overheated economy looks like,” said Joe Brusuelas, chief economist at RSM US LLP, after the release of the GDP data.
A single quarter of negative growth doesn’t mean the US economy is in recession, a finding made by a panel of experts at the National Bureau of Economic Research, taking into account data spanning many months. Still, Wells Fargo economists Jay Bryson and Shannon Seery said in a note to clients Wednesday, “The likelihood of a recession next year is not insignificant.”
Broadly speaking, that’s what one might expect, or even hope for, as policymakers attempt to cool an overheated economy, said Tony Fratto, former White House spokesman for President George W. Bush and now a partner at Hamilton Place Strategies.
“The recipe for full employment and inflation is to de-foam the economy a little,” Fratto said on Wednesday. “But the policy of negative growth, even for a quarter — at this point in a mid-election year — is really, really risky for the White House.”
Democrats must be ready to fight with Republicans who are ready to pound them over the slowdown in growth, which, coupled with high inflation and rising interest rates, may feel more like malaise, he added.
“You’re not going to talk about stock levels,” he said of the GOP. “They’re just going to talk about how big Democrat spending caused inflation and a slowdown in the economy, and now it’s only going to get worse.”
Republicans jumped at the news.
“Accelerating inflation, a workers’ crisis and the growing risk of a significant recession are the Biden administration’s signature economic failures — and likely to get worse,” Rep said. Kevin Brady from Texas, the top Republican on the House Ways and Means Committee.
Referring to a thread by Jason Furman, former chairman of President Barack Obama’s Council of Economic Advisers, the senior Biden administration official Wednesday explained why technical factors masked the economy’s underlying strength in the first quarter.
But one analyst said that kind of messaging from the White House wouldn’t work.
“Any time you rely on a 12-tweet thread by Jason Furman to explain why the economy is actually better than it looks — especially when GDP is already an abstract thing that people as opposed to Inflation doesn’t necessarily feel intuitively – I think it makes the story they’re trying to tell now even more difficult,” said Liam Donovan, a director at Bracewell LLP and a former GOP employee. “There are only so many indicators left that can provide good news. The last thing they need is more bad news.”
The Biden boom turns into a GDP bust
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