the Old Post Office in Chicago, Illinois on June 28, 2023. (Photo by ANDREW CABALLERO-REYNOLDS/AFP) (Photo by ANDREW CABALLERO-REYNOLDS/AFP via Getty Images)AFP via Getty Images
The President has just delivered a highly acclaimed speech in Chicago. In it, President Biden told Americans that they had the wrong view of the economy. Although poll averages show that only about 38.3% of American voters have confidence in the President’s handling of the economy, Biden believes he’s doing a great job, and he told America so in Chicago. Not only did he insist that things were improving, but he also told the audience that things would only get better once his policies had a chance to have an impact. The lecture is clearly aimed at the 2024 election. The message is unlikely to be accepted.
Biden has done quite a job. His approval ratings for economic issues have steadily deteriorated since he took office. In March 2021, shortly after Washington’s second Pandemic Assistance Act went into effect, about 60% of American adults thought Biden was doing a good job in the economy. That was the high point. Soon after, especially as signs of inflation began to appear, his approval ratings began to fall, and have continued to do so since, right up to the recent poor results.
Despite this public judgment, in his Chicago speech, Biden took full responsibility for his administration’s economic responsibilities and labeled them “bidenomics.” The business symphony composed there had four movements. The first took advantage of the still strong job market. In May, the number of employees rose by a strong 339,000, even faster than the already impressive numbers of the previous months. Although unemployment has risen slightly to 3.7% of the labor force, it is still remarkably low by historical standards. The second sentence of the speech used the positive jobs theme to hint at how the economy avoided the recession that was once widely expected in response to the Federal Reserve’s (Fed) anti-inflationary rate hikes. The third sentence then dismissed fears of inflation. The President noted that the pace of inflation has slowed dramatically from the highs a year ago. At an annual rate of 4%, it is less than half what it was in June 2022.
The final, fourth movement of the Presidential composition had a dramatic, prospective tone. The president claimed that his policy of targeted investment would boost the economy much more effectively than tax cuts. As examples, he cited last year’s bipartisan infrastructure bill and its legislation to subsidize domestic semiconductor manufacturing, and the recently announced $40 billion to bring high-speed internet to the entire country. He insisted these steps will pay off, although he acknowledged that it will take time for the effects to be felt.
Despite all of that, there are other economic indicators that the president doesn’t mention, as well as different economic perspectives, that could explain Biden’s low economic rating, despite the wording of the speech. A key handicap that Americans need to take note of is the real wage situation. While weekly and hourly salaries have increased, they have not kept pace with inflation. Since Biden took office, hourly wages have fallen more than 3% following the impact of inflation. Meanwhile, other key economic indicators are showing excessively slow growth, if not signs of an outright recession. The country’s real gross domestic product (GDP) rose by just under 2% annually in the first quarter of the year, far below the historical average. Consumer spending – a crucial two-thirds of the economy – grew by just 0.8% a year in real terms in the three months to May, the latest period for which data is available. Although residential construction has recently increased, it has fallen by almost 13% over the past year. Such news does not inspire confidence in households, nor does it point to an engine of growth.
If Biden’s speech is a preview of the 2024 campaign – and it certainly looks like it – it’s a high-risk strategy. After all, there are still 16 months until the election. For his economic perspective to gain importance, the economy must improve visibly in the coming months. However, the Fed has indicated that it is committed to raising interest rates in the coming months and at least keeping them high until inflation returns to the preferred 2% interest rate, which is half the current current rate. That promises high and possibly rising interest rates for some time to come, a policy stance that, unless guaranteeing a recession, does little to portend an economic recovery. The President has also effectively promised further improvement in inflation. However, history shows that inflation tends to take different trajectories and will almost certainly show signs of deterioration at some point during this period. Neither is it likely that wages will be able to keep up with inflation any time soon. Of course it could work out, but the odds still suggest things will get worse before they get better. The President seems to have already made a bet on something else.
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I’m an economics and investment strategy consultant and chief economist at New York-based communications firm Vested. I’m an editor for The National Interest and a fellow of the Center for the Study of Human Capital and Economic Growth at the University at Buffalo (SUNY). In my long career in finance, I have held positions as portfolio manager, research director and chief investment officer. My latest book, Bite-Sized Investing, teaches the basic principles of investing to beginners and reminds veterans. I have an MSS in Economics from Birmingham University in England and a BA in Economics from the State University of New York at Buffalo.
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