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Why Biden’s strong economy looks so bad to most Americans

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What is the biggest problem facing the US economy right now? Vibrations are off.

By almost any objective measure, Americans are faring much better economically than they were nearly three years ago when President Joe Biden took office. Still, a majority — 58% — say Biden’s policies have worsened economic conditions, according to a new CNN poll conducted by SSRS.

This is an increase from 50% a year ago.

But these gloomy prospects are at odds with the hard data, which reveals an economy full of optimism.

“Has the economy improved under Joe Biden? There’s literally no doubt about it,” said Justin Wolfers, professor of public policy and economics at the University of Michigan.

In January 2021, at the start of Biden’s term, “everything sucked,” according to Wolfers. Unemployment stands at 6.3% and the economy has yet to rebound from the Covid-19 shock. Wolfers described this period as “one of the worst economic times of my life.”

Two and a half years later, the American economy is in a much healthier situation.

Unemployment is at its lowest level in half a century – around 3.5% – for the past 18 months. August marked the 32nd consecutive month of job growth. Real (i.e. inflation-adjusted) wages increase. It has helped everyone feel confident to keep spending money, which keeps America’s economic engine running.

In other words: people spend as if they were in a good mood, even if they say the opposite.

“There’s this disjunction between reality and perception that’s as big as I’ve ever seen in my career,” Wolfers told CNN. “If you fell asleep in 2019 and woke up in 2023, you’d find about the kind of economy you’d expect.”

So why this sour mood?

In short: Inflation, housing and bitter national politics.

Economists are finding it practically difficult to revise their growth forecasts upwards. Many banks are radically revising, or even reversing, their expectations of a recession in 2023.

On Wednesday, S&P Global Market Intelligence raised its third-quarter GDP estimate by nearly two percentage points, to an annualized rate of 4%, citing surprisingly strong retail sales data. It slightly increased its annual estimate to an all-time high of 2.3%.

An even more optimistic outlook comes from the Atlanta Fed’s GDPNow model, which currently projects third-quarter GDP growth at a whopping 5.6% annualized rate.

The economy is “growing much stronger than expected,” Morgan Stanley economists recently told clients in a research report. The bank now expects GDP for the year to grow to a pace of 1.9%, nearly double its previous forecast.

The sharp rise in prices in 2021 and 2022 marked a painful economic moment for households around the world. In the United States, inflation peaked at 9.1% in June 2022. The euro zone reached 10.6%, while the United Kingdom exceeded 11%.

Inflation has improved considerably. The United States reached 3.2% in July, according to the latest consumer price index. (The eurozone reached 5.3% in August, while the UK is at 6.8%.)

That means prices overall are still about 18% higher today than they were at the end of 2019, before the pandemic, according to the Bureau of Labor Statistics.

Despite all this, real personal consumption spending continues to grow at a healthy pace, said Carola Binder, associate professor of economics at Haverford College. “So it looks like the ‘bad vibes’ aren’t leading to a lot of precautionary savings.”

Gasoline prices, which are notoriously volatile, tend to feel like a slap in the face because they’re unavoidable: even if you’re not driving, you see the prices posted outside every gas station.

Throughout 2022, gas prices have been particularly difficult to predict, as the Russian invasion of Ukraine rocked global commodity markets.

Earlier this summer, U.S. drivers were enjoying big savings on gas compared to 2022. But by late August — around the time the CNN poll was taken — prices had rebounded to their highest level in months. , just under $4 a gallon on average. .

The economy looks even worse for people looking to buy a home.

Housing affordability is at its lowest level in decades, with mortgage rates rising above 7% to their highest level in more than 20 years. When Biden took office, mortgage rates were at a record high of 2.65%.

The Fed is partly responsible. Eleven interest rate hikes over the past year and a half have helped push mortgage rates up faster.

The median home price in the United States fell from $258,000 in 2019 to $416,100.

But the affordability problem isn’t just about higher financing costs. It’s also down to historically low inventories, thanks to a pandemic-era buying spree combined with a lingering shortage rooted in the 2008 subprime mortgage crisis.

CNN’s latest poll shows Republicans and Democrats alike are unhappy with President Biden’s handling of the economy.

Only 2% of Republicans and 48% of Democrats said economic conditions had improved under Biden. Nearly a quarter of Democrats said Biden’s policies have worsened economic conditions. Ninety-one percent of Republicans agreed.

“People don’t tell us what they think about the economy anymore. They actually tell us what they think about the president,” Wolfers said.

Either way, it poses a political problem for President Biden, whose re-election campaign has sought to showcase the strengths of the economy.

“You can’t make people feel better,” former White House senior adviser David Axelrod told CNN This Morning. “I think the president needs to find a way to talk about the things he’s done in a context other than asking the American people for a ballot.”

— CNN’s Matt Egan contributed to this article.