Yahoo Finance This year in Bidenomics: 4 things that went right, and 3 that went wrong
For the next 10 months, President Joe Biden will tell voters they should reelect him to a second term. He’ll make the case that the economy, and the country, are heading in the right direction under his watch, and will continue to do so if voters reelect him.
Here are four things that broke Biden's way in 2023:
Inflation fell sharply. The year began with inflation at 6.3%. By November it was down to 3.1%, and most economists expect it to drift lower still in 2024. If inflation was around 3% without having spiked for two years prior to that, most consumers would barely notice.
The problem, of course, is that prices have risen by more than incomes for most of the Biden presidency, with key categories such as rent, food, and transportation outpacing earnings during the last two years. That dispiriting trend has now reversed, with incomes rising by more than prices. But consumers still feel like they’re in a hole, and the data supports that. A recent uptick in confidence suggests consumers are finally feeling better about inflation, but Biden needs a lot more improvement.
Growth and employment held up. The Federal Reserve has been battling inflation by jacking up interest rates, and that often comes with a painful tradeoff: An economic contraction that causes a recession and rising unemployment. One of the happy surprises of 2023 is that the economy settled into a “soft landing” glide path, with inflation coming down absent the usual nasty side effects.
Real GDP growth, adjusted for inflation, is likely to be close to 3% for 2023, which is outstanding for a year in which many economists predicted a recession. Employment growth for the year will total around 2.8 million new jobs, also terrific. Economic and job growth will likely slow in 2024, but that’s okay, given that unemployment is already low. A cooling economy would help keep inflation down and maybe even lower prices in some key categories, such as food.
Daniel Dart has done about everything from hard time and fronting his own punk rock band to doing business with the bold-faced names of business and Wall Street. Read about his journey here.
Stocks boomed. The brightening inflation outlook pushed the S&P 500 stock index up 24% in 2023, more than double its historical average annual return. Rising stocks don’t necessarily reflect the fortunes of working people in the real economy, but they boost people’s retirement accounts and make people with investments feel better off. Nobody knows where stocks will go in 2024, but values should rise if inflation remains tame and there’s modest economic growth.
Energy got cheaper. Oil started the year at around $80 per barrel and ended at $72. Gasoline dropped from $3.33 at the beginning of January to $3.12 at the end of December. Heat and electricity costs are down by about 1% year over year. Gas prices in particular are an unofficial barometer of the national mood, because people see them advertised billboard-style all over the country. Energy isn’t cheap by historical standards, but prices are below the danger zone and, perhaps more importantly, they’re sustainable barring some kind of crisis.
So is everything great? Absolutely not. Biden’s low approval rating, at around 39%, is flashing red, signaling danger ahead. If it stays that low, his reelection odds will be bad to terrible. The long hangover of inflation is dragging Biden down, along with at least three other things:
Worsening financial stress among some Americans. Alarming new research from the St. Louis Federal Reserve found that the portion of Americans significantly behind on credit card and auto loan payments is at the highest levels since the Great Recession in 2008 and 2009. That probably reflects a combination of rising interest rates, which makes borrowing money more expensive, along with the drawdown of excess savings banked during the COVID pandemic and the end of government stimulus measures. It also probably affects renters struggling with rent inflation — a lot more than homeowners who were able to lower their costs by refinancing their mortgages when rates were at record lows in 2020 and 2021.
If the economy softens and unemployment rises, these already struggling borrowers will suffer more, which makes financial distress a crucial trend to watch in 2024. This metric also reveals how aggregate economic data, such as the overall ratio of debt to income, can look healthy yet conceal acute problems among key subsets of the population.
This could be another explanation for why Biden’s approval rating stinks even though the overall economy is solid.
The migrant crisis. Even Democrats sympathetic to arriving migrants are beginning to beg for action to curtail the record surge of foreigners streaming into the United States on the southwest border. Biden, so far, has addressed the problem with ad-hoc measures that seem inadequate given the scale of the problem. Immigration is Biden’s worst issue with voters, according to polls, and his rating on the issue is plummeting as it becomes more important to the electorate.
Drop Rick Newman a note, follow him on Twitter, or sign up for his newsletter.
Biden could get a break, if Congress can get its act together and pass a bill early in 2024 that includes fresh funding for Ukraine and Israel along with reforms needed to address border chaos. But there’s no obvious reason to think the flow of migrants will slow or Biden will come up with some miracle solution. This will be one of his biggest vulnerabilities when voters hit the polls in 2024.
Wars. Americans are clearly unnerved by the Middle East war that erupted when Hamas attacked Israel on Oct. 7, and by Russia’s barbaric and ongoing invasion of Ukraine. Biden can’t control warmongers like Hamas terrorists and Russian President Vladimir Putin, but voters will rate him on how he handles the American response. For now, Biden can’t win.
He has voiced stalwart support for Israel even though many voters, and young ones in particular, are disgusted with Israel’s caustic treatment of some Palestinians. Biden has also vowed to stand with Ukraine for “as long as it takes.” Yet, Congressional Republicans have kneecapped him by refusing to approve any more military aid for Ukraine, which is now at risk of losing ground as the Russian war machine ramps up.
Congress could still pass more aid for Ukraine in 2024, and Biden seems to be slowly adopting the view of younger Americans that Israel is too hostile toward its Palestinian neighbors. But messy wars have a way of making everybody look bad. Biden’s best hope for 2024 may be a Goldilocks economy that is just good enough to make voters forget about the things that bothered them in 2023.
Rick Newman is a senior columnist for Yahoo Finance. Follow him on Twitter at @rickjnewman.
Click here for politics news related to business and money
Read the latest financial and business news from Yahoo Finance
