Job growth may be disappointing for some economists, but Biden officials note that wages are rising. Inflation is hitting consumers, but the Federal Reserve sees it as transitory. Homeowners may have to wait months for furniture and appliance deliveries, but that’s because the economy is picking up faster than expected. And the administration wants to pump billions more into the economy, with childcare options, free preschool and other benefits for working people, especially at the lower end of the income scale.
“From the start we were clear that inflation would firm up as the bailout received gunshots and checks in the pockets,” said Jared Bernstein, member of Biden’s Council of Economic Advisers. . “The reason these price pressures are weighing on us is being lost: an extremely solid recovery is underway, with strong job creation and wage gains for workers who finally have some bargaining power. “
How well Biden and the White House can make that argument – and actually deliver on their promises – will determine whether a recent drop in the president’s approval rating proves temporary or portends a fall that could put Democrats on the line. serious danger. halfway through 2022.
A Monmouth University poll this month showed Biden’s approval rating slipped to 48% from 54% in April, with 47% of Americans “very concerned” about the price hike. According to aggregate figures from the FiveThirtyEight poll, 52.7% of voters approve of the work Biden is doing, up from 55% earlier this year.
Economists suggest that while the declines are small, they reflect growing anxiety about rising prices and the possible impact of Biden’s big spending plans.
“The problem right now is really about people’s psyche and how they feel about it and how persistent all of those higher prices will be,” said Rubeela Farooqi, chief U.S. economist at the research firm. High Frequency Economics. “For the White House this is a delicate situation and all it can do is stick to its message that this is all temporary and will subside. But if it doesn’t, the Federal Reserve will have to act and it will certainly slow the economy. “
On Friday, the Commerce Department reported that the price index for “basic personal consumption expenditure” – a key indicator of inflation that the Fed uses to set its policy – rose 3.4% in May through compared to the same period last year, the biggest increase since 1992. Overall prices are up 3.9% from last year, the biggest gain since 2008, when oil prices soared in arrow. Personal income fell 2% in May, but that was largely the result of an inflated number in April when the stimulus checks were issued.
The inflation numbers were not higher than Wall Street’s expectations and partly reflected the depressed state of the economy last year. But they are nonetheless being felt by consumers who face higher prices for cars, rideshare services, hotels, food, gasoline and other items, even as the pace of jobs returning. pandemic has slowed down. And employers are struggling to find the workers they need to meet growing consumer demand, a trend that worries White House officials.
The hope inside the West Wing is that by the end of the summer, when improved federal unemployment benefits are expected to expire, workers currently sitting on the sidelines will return to the workforce, alleviating a part of the pressure on employers to offer disproportionate bonuses. and other benefits just to get people back to work.
This is a tricky math because the administration wants to see higher wages for workers, but not the kind to skyrocket inflation and force the Fed to raise interest rates faster than it needs to. wish and potentially stifle growth.
Biden himself surprised some economists on Thursday when he said the problem with the labor shortage was the lack of better wages.
“These were legitimate questions you were asking me,” he said. “Well, you know, guess what? Employers can’t find workers. I said, ‘Yeah. Pay them more. It’s an employee’s bargaining chip now, what’s happening. [Companies are] is going to have to compete and start paying a living wage to hardworking people.
This sentiment reflects the thinking of progressives in the Democratic Party. But economists are very concerned that overly generous unemployment benefits may at least partly be what pushes workers away from the workforce and that higher wages – though generally welcome – could fuel inflation.
And Republicans continue to take inflation numbers to suggest that Biden’s spending plans and the Fed’s easy money policies risk even higher prices that could slam consumers and undermine growth that is expected to be robust. this year and next year.
Representative Kevin Brady of Texas, the top Republican on the House Ways and Means Committee, tweeted friday that Biden was “blowing it” on the economy: “549,000 fewer jobs in 2021 than the last 5 months of 20; Prices rise twice as fast as paychecks… Inflation is at its highest for 13 years.
Republicans also continue to hammer out higher gas prices, a sore point for Democrats especially as Americans hit the road this summer for vacations and family visits long postponed by the pandemic.
Rep. Jim Jordan of Ohio, the leading Republican on the House Judiciary Committee, tweeted this week: “Average gas price: June 2020: $ 2.21 June 2021: $ 3.07 President Biden’s economy! “
This prompted a scathing reply from White House press secretary Jen Psaki, indicating that the administration is sensitive to the impact that higher fuel prices can have on general consumer sentiment.
“You forgot to mention that gas prices are the same as in June 2018. Or that at the same time last year the unemployment rate was 11.1% – today it is 5.8%, “Psaki tweeted to Jordan.
Senior White House economics officials say if they keep a close eye on prices – and are a little worried about labor market trends – they don’t think inflation will continue to rise. Instead, they say they will step up efforts to address supply chain issues while arguing that the economy is coming back and any pain caused by price hikes this summer will be fleeting.
But it is at least as much a hope as a certainty. The United States is clearly not on the cusp of soaring 1970s inflation. But it is near a tipping point that could be politically perilous for the White House and the Democrats in Congress.
“A lot of this stuff isn’t quite the bite yet,” said Richard Bernstein, founder of investment firm Richard Bernstein Advisors.
“Gas prices as a percentage of wages are nowhere near where it starts to bite. The bottom line will be whether wages are rising faster than inflation. If they are, people tend to feel good even if they have to pay more. If they are not, we are back to talking about the “poverty index” and it is a serious political problem. “