Since peaking at $5 per gallon in June, gasoline prices have gone President Biden’s way. The sharp price drop since then, to around $3.80 per gallon, has neutralized what was looking like a catastrophic liability for Biden and his incumbent Democrats.
Yet Biden’s party seems set to lose control of Congress in the Nov. 8 midterm elections anyway. The Supreme Court’s gutting of the Roe v. Wade abortion protections in June was supposed to be a game-changer for Democrats that would boost the turnout of angry voters eager for a Democratic Congress to counterbalance the newly conservative court. In recent weeks, however, abortion has receded as a voting issue, displaced by that old stalwart, the economy, stupid.
New analysis by Moody’s Analytics isolates real disposable income and inflation-adjusted home values as the two economic indicators that best predict the fate of the incumbent party in midterm elections. Home values ought to be a Democratic advantage. Prices are up 13% year over year, while inflation is 8.2%, for a real, inflation-adjusted gain of around 5%. That would normally be great news for incumbents.
[Are you voting Republican because of the economy? Tell us why.]
But COVID-related distortions undermine the value of the hot housing market for the incumbent Democrats. As pandemic demand for real estate skyrocketed in 2020 and 2021, soaring prices became a windfall for sellers and owners. Buyers, however, faced sticker shock, with many priced out. Now they’re getting whiplash as the Fed jacks up interest rates, to combat inflation. Rising rates and still-high prices have produced an affordability crisis, with the Oxford Economics housing-affordability index at the worst level since 2007, which was the peak of the last housing bubble. A bumptious housing market unsettles voters, rather than reassuring them.
As for real income, by some measures, it’s near record lows. Real incomes are down 4.5% from a year ago, on a seasonally adjusted basis, according to government data. The average quarterly change going back to 1970 is a 3.1% gain. So this is a particular pain point for consumers right now. This chart tells the story:
To understand what’s going on with incomes, ignore the unprecedented spikes and declines that occurred in 2020 and 2021, as workers flooded out of the workforce, then returned. Instead, notice where real incomes have leveled off as the labor market has returned to normal. Real incomes are down by more than at any time during the last 60 years, including the period in the 1970s and early 1980s when inflation was even higher than it is now. Wages will probably catch up with inflation over time, but right now the typical worker is falling badly behind.
Here's another way to see the problem for Democrats. For the Yahoo Finance Bidenomics Report Card, we track real income and five other economic metrics under Biden, compared with prior presidents going back to Jimmy Carter in the 1970s at the same point in their presidency. Biden gets high marks for job creation, but he earns the lowest mark among eight presidents for average hourly earnings. Again, that’s because inflation is higher than nominal wage growth, which erodes the typical worker’s purchasing power.
High gas prices were never Americans' biggest problem
Biden has been obsessively focused on gasoline prices, just recently announcing, for instance, that the government will continue releasing oil from the strategic reserve into December, to help tamp prices down. Biden’s approval rating dropped as gas prices soared to new peaks earlier this year, then improved as gas prices fell.
But voters have economic worries well beyond gas prices, as they should: Housing and food costs account for a much bigger portion of the typical family budget than gasoline. Food prices are up 13% year-over-year. Housing costs are up 8%. Nominal earnings are only up 5%. Paychecks are not keeping up with price hikes.
While voters have shown less concern about gas prices during the last several weeks, they remain nervous about the overall economy. “Americans’ views of the nation’s economy remain overwhelmingly negative,” Pew Research reported on Oct. 20, with its latest poll showing 82% of voters rate the economy as poor or fair. Only 17% say the economy is excellent or good. Seventy-three percent say they’re very concerned about the price of food, slightly more than the 69% very concerned about the cost of gasoline.
Gallup polling has shown that the economy is the most important voter issue, by far, all year. And there’s been little change in concerns about inflation, even as gas prices have plunged. In May and June, 18% of voters said inflation was their top concern. In September, it was 17%, which is barely an improvement. Falling gas prices have not convinced anybody that overall inflation is receding. The portion saying abortion rights are the most important issue, meanwhile, is just 4%—down from 8% in July.
There’s probably not much more Biden could have done during the last several months to combat food inflation or other price hikes that have voters bummed out. The president’s tools are limited to start with, and it’s the Federal Reserve’s job to address inflation through monetary policy. Fed rate hikes will probably do the job, eventually. But it will come too late to help Democrats keep power in 2022. By 2024, maybe.
Rick Newman is a senior columnist for Yahoo Finance. Follow him on Twitter at @rickjnewman
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October 25, 2022 at 11:31PM
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Why Democrats are set to lose - Yahoo Finance
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