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A year after taking office, the president could be sunk by one economic metric no matter how good the other numbers are.
The Biden administration has a long list of metrics to make the case that the U.S. is enjoying the strongest economic recovery from Covid-19 in the world: low unemployment, higher wages, a record 6.4 million jobs created in 2021. One number, however, could erase any gains: 7%. It represents the highest annual increase in inflation since 1982. Republicans are wasting no time seizing on that fact, and it’s working. A year after taking over, Biden’s approval ratings are headed downward and consumer confidence has sunk to its lowest in more than a decade.
We looked at the metrics that best sum up where the U.S. economy stands at the end of Biden’s first year. Here they are.
I. INFLATION
Rising prices could render any economic gains Biden has made into mere afterthoughts. The 7% increase in consumer prices is already helping to sabotage the president’s FDR-sized spending agenda. Democratic Senator Joe Manchin used inflation as a reason to withhold support for Biden’s $2 trillion domestic spending package and in the process struck it a fatal blow. Biden touts rising wages as a signal of economic recovery, but that might be a tough sell to families that are struggling to buy groceries or fill up the gas tank, even with a bigger paycheck.
Inflation also has the Federal Reserve talking about a raise in borrowing rates this year after more than a decade of keeping them near zero. Goldman Sachs expects four rate hikes this year, and last week hedge fund billionaire Bill Ackman urged the Fed to “shock and awe the market” with a rate hike of 50 basis points, double the expected increase, joining a chorus of voices urging the Fed to act fast.
II. LABOR
The jobless rate has fallen to a number close to what it was before Covid-19 sent a shockwave through the system. Before Biden took office, it was 6.7%. Today it’s at 3.9%. With 10 million job openings, the problem for employers is the “Great Resignation.” Four-and-a-half million workers quit their jobs in November, pushing the monthly quit rate to an all-time high of 3%, up from 2.3% at the beginning of Biden’s presidency.
“People are talking about that as bad news,” said Dean Baker, cofounder of the Center for Economic and Policy Research. “I guess for employers it is, but I’m more concerned about the workers that feel they have the ability to quit a job they don’t like and find a better one. To my view, that’s a really great story.”
III. ENERGY CRUNCH
The price of crude oil has risen 62% since Inauguration Day to $86 per barrel, the highest since 2014. Prices at the pump have nearly doubled in the last year to $3.30 a gallon, and heating costs for households using natural gas are expected to be 30% higher than last winter.
IV. NATIONAL GROWTH
The projected 5.6% real GDP growth to be reported next week would be the largest single-year jump since 1984. A caveat: The economy’s torrid growth rate has slowed since the first half of 2021, when the vaccine rollout fueled more spending by consumers and businesses. Real GDP growth was higher than 6% in the first two quarters of the year, but slowed to 2% in the third quarter, with the $1.9 trillion American Rescue Plan passed last March not quite providing the turbocharge Democrats were hoping for.
“The American Rescue Plan was a major policy error that haunts us to this day,” said Douglas Holtz-Eakin, former director of the Congressional Budget Office. “Biden signed it into law when the economy was growing 6.5%. There was no need to sign that.” Holtz-Eakin, who was chief economic adviser to John McCain’s 2008 presidential campaign, gives Biden a “gentleman’s C-minus” for his handling of the economy.
V. STOCKS
Republican Donald Trump, Biden’s opponent in the 2020 election, warned that the stock market would crash if Biden were elected, but that turned out to be nothing more than campaign rhetoric. The S&P 500 is up 19% in Biden’s first year, though the president has been reluctant to brag about it like his predecessor, perhaps because he knows it’s mostly out of his control. Also, he may not want to hold himself responsible for the S&P’s 2022 performance. It’s declined 5% so far in January.
VI. BOND YIELD
Rising inflation and the promise of higher interest rates has pushed bond yields to their highest since before the pandemic. The 2-year Treasury crossed 1% this week after sitting at just 0.13% when Biden took office, and the yield on the 10-year Treasury is up 31 basis points just this month to 1.83%. A narrow spread between short-term and long-term bond yields typically signals economic uncertainty, though economists expect the 10-year yield to continue rising past 2% this year.
VIII. CONSUMER SENTIMENT
Despite the booming stock market and strong employment, Americans are more dismayed than they’ve been in a decade. The University of Michigan’s monthly consumer sentiment survey registered a score of 67.4 in November 2021, its lowest since 2011. The most recent reading earlier this month was 68.8. The score was at 79.0 when Biden took office in January 2020 and rose in his first few months, but inflation and surges of Covid-19 variants in a seemingly never-ending pandemic have sent confidence spiraling.
IX. BUSINESS BANKRUPTCIES (CHAPTER 11 FILINGS)
Hertz, JCPenney and Chesapeake Energy were among the 7,129 U.S. companies that filed for bankruptcy in 2020, an eight-year high as the onset of the pandemic upended the economy. That pace screeched to a halt in 2021, with small businesses propped up by government spending and emergency loan forgiveness programs. Just 3,724 companies filed bankruptcy claims last year, the lowest in at least four decades, according to data from the American Bankruptcy Institute. Belk and the National Rifle Association were among the group of corporations that went bankrupt in 2021.
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