Since gas prices peaked at $5 a gallon in June, they have benefited President Biden. Since then, a sharp drop in prices to about $3.80 a gallon has neutralized what looked like a disaster for Biden and his incumbent Democrats.
However, it appears that Biden’s party will still lose control of Congress in the Nov. 8 midterm elections. The Supreme Court was expected to decide Roe v. Wade’s abortion protections as a game-changer for Democrats that would boost the turnout of angry voters who want a Democratic Congress to balance a newly conservative court. In recent weeks, however, abortion has become a ballot issue, supplanted by the old stupidity, economics.
A new analysis from Moody’s Analytics singles out real disposable income and inflation-adjusted home values as the two economic indicators that best predict the fate of an incumbent party in the midterm elections. Home values should be a Democratic advantage. Year-on-year, prices are up 13%, while inflation is 8.2%, and real, inflation-adjusted growth is around 5%. Normally, this would be great news for incumbents.
[Are you voting Republican because of the economy? Tell us why.]
But COVID-related distortions are undermining the value of a hot housing market for incumbent Democrats. With pandemic-induced demand for real estate surging in 2020 and 2021, price increases came as a surprise to sellers and owners. However, buyers faced sticker shock and many had to pay the price. Now they’re getting the whiplash as the Fed raises interest rates to fight inflation. Rising rates and still high prices have fueled an affordability crisis, with Oxford Economics’ housing affordability index at its worst level since 2007, the peak of the last housing bubble. A rough housing market worries voters, not reassures them.
As for real incomes, they are near record lows by some measures. Real income fell by 4.5% on a seasonally adjusted basis from a year earlier, according to government data. The average quarterly change since 1970 is a 3.1% increase. So this is a particular sore point for consumers right now. This chart tells the story:
To understand what’s happening to incomes, ignore the unprecedented boom and bust that occurred in 2020 and 2021 as workers flooded out of the labor force and then returned. Instead, notice where real incomes have leveled off as the labor market has returned to normal. Real incomes have fallen more than at any time in the past 60 years, including a period in the 1970s and early 1980s when inflation was even higher than it is now. Over time, wages will probably catch up with inflation, but right now the typical worker is lagging far behind.
Here’s another way to see the problem for Democrats. In Yahoo Finance’s Bidenomics report card, we track real income and five other economic indicators under Biden compared to previous presidents going back to Jimmy Carter at the same time in the presidency in the 1970s. Biden gets high marks for job creation, but he earns the lowest mark among eight presidents for average hourly earnings. Again, this is because inflation is higher than nominal wage growth, which erodes the purchasing power of the typical worker.
High gas prices have never been America’s biggest problem
Biden has been obsessively focused on gasoline prices, only recently announcing, for example, that the government will continue to release oil from the Strategic Reserve through December to help lower prices. Biden’s approval rating dipped as gas prices rose to new highs earlier this year, but then improved as gas prices fell.
But voters care about the economy beyond gas prices, as they should: Housing and food costs make up a much larger portion of a family’s budget than gasoline. Food prices have increased by 13% compared to the corresponding period of the previous year. Housing costs are increasing by 8%. Nominal profit increases by only 5%. Wages do not follow the rise in prices.
While voters have shown less anxiety about gas prices in recent weeks, they remain worried about the overall economy. “Americans’ views of the nation’s economy remain overwhelmingly negative,” Pew Research reported on Oct. 20, whose latest poll found that 82 percent of voters rated the economy as bad or fair. Only 17% say the economy is great or good. Seventy-three percent say they are very worried about the price of food, just over 69% are very worried about the cost of petrol.
A Gallup poll shows the economy is the most important issue for voters all year. And inflation concerns have changed little, even as gas prices have fallen. In May and June, 18% of voters said inflation was their main concern. It was 17% in September, barely an improvement. Falling gas prices have not convinced anyone that overall inflation is falling. At the same time, the share that says abortion rights is the most important issue is just 4%, down from 8% in July.
Biden may not have been able to do much more in recent months to combat food inflation or other price hikes that have worried voters. Initially, the president’s tools are limited, and the Federal Reserve’s job is to prevent inflation through monetary policy. The Fed’s rate hikes will probably do the trick. But it will be too late to help the Democrats stay in power in 2022. Maybe until 2024.
Rick Newman is a senior journalist Yahoo Finance. Follow him on Twitter at @rickjnewman
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