In August so far, five key economic trends have broken Joe Biden’s way.
1. Inflation declined. Data published Aug. 10 shows the year-over-year inflation rate is 8.5%, down from 9.1% the month before. Inflation is still way too high, but many economists think 9.1% was the peak and inflation could be in the 4% or 5% range by next year.
2. Gas prices fell below $4 per gallon for the first time since March, with AAA reporting a national average of $3.98 on Aug. 12. The direction of crude oil and wholesale gasoline prices suggests retail pump prices will drop a bit more by the end of the summer.
3. The Atlanta Federal Reserve’s GDP Now tool is forecasting 2.5% economic growth in the current quarter, providing further evidence there’s no recession. The back-to-back declines in GDP in the first and second quarters raised some doubts, even with a strong labor market. But the recession narrative is basically over, for now.
4. Stocks have rebounded. The S&P 500 index is up 16% in a month. The NASDAQ tech index is up 21%. It’s not clear this rally will last, but it’s a break from what has otherwise been a gloomy year for stocks.
5. The job market continues to boom, with employers creating 528,000 new jobs in July. There’s no sign that’s an aberration. Job growth will probably slow through the end of the year, but businesses plainly have many workforce holes they still need to plug.
The political environment is surprisingly buoyant for Biden, as well. Congress is on the verge of passing the misnamed Inflation Reduction Act, which won’t really tame inflation but won’t make it worse, either. The bill contains funding for green energy, deficit reduction, prescription drug discounts and better enforcement against tax evaders. Modest new taxes will mostly hit the wealthy. Republicans hate the bill, but there’s not a lot for them to criticize because it won’t cause ordinary Americans any pain at all.
Biden also signed the CHIPS+ Act on Aug. 9, notching new funding for semiconductor manufacturing in the United States. This allows Biden to claim he’s stiff-arming China and finally fighting back against a communist government that aids home-grown businesses much more than Uncle Sam typically does.
Biden and his fellow Democrats are already gaining an edge from these favorable developments, and the timing couldn’t be luckier for them. Biden’s approval rating has begun to tick up from a low of less than 38% in July. The fivethirtyeight poll tracker now rates Biden at around 40% approval, a number that will probably go higher if gas prices and overall inflation improve further. Biden is still way off the peak of 55% early in his first year, but he has to be relieved that a long slump seems to be ending.
'The outlook has tightened'
More important than Biden’s popularity are Democratic odds of retaining control of Congress in the upcoming midterm elections. In “generic ballot” polling asking which party should control Congress, Democrats have clearly gained momentum in recent weeks, and now slightly top Republicans. But the nature of individual races still favors a Republican takeover of the House.
“It’s a stretch to expect the Democrats to keep control of the House, although the outlook has tightened,” Greg Valliere, chief strategist at AGF Investments, wrote on Aug. 12. He expects Republicans to gain around a dozen House seats in November, a few more than needed to take control. Democrats may be able to hold onto the Senate, with popular legislation and an improving economy boosting a handful of Dems in tight reelection battles.
Consumer are still gloomy, but the mood is beginning to shift. Morning Consult’s confidence tracking shows an uptick during the last few weeks that coincides with falling gas prices. It also correlates with Biden’s improving numbers. The University of Michigan's preliminary numbers from August also show improved consumer sentiment. If inflation continues to cool, expect sentiment to improve further and Biden’s approval to follow.
There are two obvious wild cards that could still render a surprise in the midterms: The Supreme Court’s rightward lurch on abortion and other issues, and the never-ending controversy surrounding Donald Trump. Some Democrats think the move to ban abortion in many states will produce a surge of turnout in their favor, possibly giving them enough surprise wins to keep the House.
The FBI search of Trump’s Mar-a-lago residence on Aug. 8 instantly energized Trump backers who endorsed Trump’s claim of victimhood. Whether this affects the midterms may depend on whether Trump declares his candidacy for the 2024 presidential race sometime soon, as he has hinted he will do. If that happens, the midterms could end up more of a referendum on Trump than on Biden, possibly hurting Republican candidates.
One thing that is certain about the midterms is that Democrats need an improving economy and cheerier voters to have any chance at electoral success. They seem to be getting that. Now, they need a few more improbably lucky breaks.