Since peaking at $5 a gallon in June, gasoline prices have gone President Biden’s way. The steep drop in price since then, to about $3.80 a gallon, has neutralized what appeared to be a catastrophic liability for Biden and his fellow Democrats.
But Biden’s party looks set to lose control of Congress in the Nov. 8 midterm elections anyway. The abortion protections of Roe v. Wade in the Supreme Court in June could be a game changer for Democrats who would add to the number of angry voters eager for a Democratic Congress to counterbalance the neo-conservative court. In recent weeks, however, abortion has ceased to be a voting issue, displaced by that old, stupid economy.
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 advantage. Prices are up 13% year on year, and inflation is 8.2%, for a real inflation-adjusted gain of around 5%. That is usually good news for the holders.
[Are you voting Republican because of the economy? Tell us why.]
But COVID-related distortions undermine the value of the hot housing market for incumbent Democrats. As pandemic demand for real estate increased in 2020 and 2021, skyrocketing prices became a windfall for sellers and owners. However, buyers had sticker shock, and many priced out. Now they are getting whiplash as the Fed raises interest rates, to fight inflation. Rising rates and still high prices have led to an affordability crisis, with the Oxford Economics housing affordability index at its worst level since 2007, the peak of the last housing bubble. A terrible housing market does not settle voters, rather than reassure them.
Real income, by some measures, is 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 back out of the workforce. Instead, note that real incomes have leveled off as the labor market has returned to normal. Real incomes have fallen more than ever before in the last 60 years, including the period in the 1970s and 1980s when inflation was even higher than it is now. Wages will likely catch up with inflation over time, but right now the typical worker is falling behind badly.
Here’s another way to see the problem for Democrats. For Yahoo Finance’s Bidenomics Report Card, we track real income and five other economic metrics under Biden, compared to previous presidents going back to Jimmy Carter in the 1970s at the same point in his presidency. Biden gets high marks for job creation, but 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 purchasing power of the average worker.
High gas prices have never been a bigger problem for Americans
Biden is obsessively focused on gasoline prices, but he recently announced, for example, that the government will continue to release oil from the strategic reserve in December, to help lower prices. Biden’s approval rating fell as gas prices rose to new highs earlier this year, then recovered as gas prices fell.
But voters’ economic concerns extend far beyond gas prices, as they should: Housing and food costs make up a much larger share of the typical household budget than gasoline. Food prices are up 13% year on year. Housing costs are up 8%. There is only a 5% increase in nominal earnings. Paychecks are not keeping up with price increases.
Although voters have shown less concern about gas prices in recent weeks, they remain nervous about the overall economy. “Americans’ views of the nation’s economy remain overwhelmingly negative,” Pew Research reported on October 20, and its latest poll showed that 82% of voters rate the economy poor or fair. Only 17% say the economy is excellent or good. Seventy-three percent say they are very concerned about the price of food, slightly more than the 69% very concerned about the cost of gasoline.
Gallup polls have shown the economy to be the most important voter issue, by far. 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. In September, it was 17%, which is hardly an improvement. Falling gas prices have not convinced anyone that overall inflation is on the wane. The share that says abortion rights is the most important issue, meanwhile, is just 4%—down from 8% in July.
There probably isn’t much more that Biden could have done in the past several months to combat food inflation or other price increases that have turned voters off. The President’s tools are limited to begin with, and it is the Federal Reserve’s job to address inflation through monetary policy. Fed rate hikes are likely to do the job, eventually. But it will come too late to help the Democrats retain power in 2022. By 2024, maybe.
He is a senior columnist for Rick Newman Yahoo Finance. Follow him on Twitter at @rickjnewman
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