Gasoline prices have gone President Biden’s way since hitting $5 a gallon in June. A sharp price drop since then to about $3.80 a gallon has neutralized what appeared to be a disastrous liability for Biden and his fellow Democrats.
However, Biden’s party looks set to lose control of Congress in the Nov. 8 midterm elections. The Supreme Court’s June upholding of abortion in Roe v. Wade is expected to be a game-changer for Democrats, boosting voter turnout angry for a Democratic Congress to confront the new conservative court. However, in recent weeks, abortion has declined as a voting issue, displaced by that old stalwart, the economy, stupidity.
A new analysis by Moody’s Analytics singles out real disposable income and inflation-adjusted home values as the two economic indicators that best predict the fate of the incumbent party in the midterm elections. Home values should be a democratic priority. Prices are up 13% year-to-date, while inflation is 8.2%, for a real gain, inflation-adjusted, of about 5%. This would normally be great news for the incumbents.
[Are you voting Republican because of the economy? Tell us why.]
But the distortions related to COVID reduce the value of the hot housing market for incumbent Democrats. As pandemic demand for real estate skyrockets in 2020 and 2021, rising prices have become a tragedy for sellers and owners. However, buyers were hit with sticker shock, with many missing out on the price. Now they are getting hit hard as the Fed raises interest rates to fight inflation. Rising prices and still high prices have created an affordability crisis, with the Oxford Economics housing affordability index at its worst level since 2007, the peak of the last housing bubble. A tumultuous housing market is unsettling voters rather than appeasing them.
As for real income, by some measures it is near record levels. According to government data, real income fell by a seasonally adjusted 4.5% from a year earlier. The average quarterly change going back to 1970 is a 3.1% increase. So, this is a special point for consumers. This chart tells the story:
To understand what’s happening to earnings, ignore the unprecedented acceleration and declines that occurred in 2020 and 2021 as workers exited the labor force and then returned. Instead, notice where real earnings have leveled off as the labor market returns to normal. Real income has fallen more than ever in the last 60 years, including during the 1970s and early 1980s, when inflation was even higher than it is now. Wages are likely to catch up with inflation over time, but for now the average worker is lagging far behind.
Here’s another way of looking at the problem for Democrats. For the Yahoo Finance Bidenomics Report Card, we track real income and five other economic indicators under Biden, compared to previous presidents in the 1970s going back to Jimmy Carter at the same time in office. Biden gets high marks for job creation, but he ranks lowest among the eight presidents in terms of average hourly wages. Again, this is because inflation is higher than nominal wage growth, which reduces worker purchasing power.
High gas prices have never been Americans’ biggest problem
Paying close attention to gasoline prices, Biden recently announced that the government will continue to release oil from the strategic reserve to lower prices in December. Biden’s approval ratings fell to new highs after gas prices rose and improved after gas prices fell.
But voters have economic concerns that go far beyond gas prices, as they should: Housing and food costs make up a larger portion of the typical family budget than gasoline. Food prices increased by 13% compared to a year ago. Housing costs increased by 8 percent. Nominal income increased by only 5%. Wages are not keeping pace with price increases.
While voters have been less concerned about gas prices over the past few weeks, they are nervous about the overall economy. Pew Research reported on Oct. 20 that 82 percent of voters rated the economy as poor or fair, indicating that “Americans’ view of the nation’s economy remains overwhelmingly negative.” Only 17% say the economy is excellent or good. Seventy-three percent say they are very concerned about the price of food, just over 69% are very concerned about the cost of gasoline.
A Gallup poll found the economy to be the most important issue to voters. And there has been little change in concerns about inflation, even as gas prices have fallen. In May and June, 18% of voters said inflation was their top concern. In September, it was 17%, which is hardly an improvement. The drop in gas prices has not convinced anyone that the inflation rate will decrease in general. The share that says abortion rights are the most important issue, meanwhile, is just 4% – down from 8% in July.
Biden may not have done much in the past few months to combat inflation or other price hikes that have displeased voters. The President’s tools to initiate it are limited, and it is the Federal Reserve’s job to address inflation through monetary policy. A federal rate hike is likely to do the trick. But it will be too late to help Democrats retain power in 2022. Maybe until 2024.
Rick Newman is a senior columnist Yahoo Finance. Follow him on Twitter @rickjnewman
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