Since peaking at $5 per gallon in June, gasoline prices have gone as President Biden. The sharp drop in price since then, to about $3.80 per gallon, neutralized what looked like a catastrophic liability for Biden and his Democrats.
However, Biden’s party looks set to still lose control of Congress in the November 8 mid-term elections. The Supreme Court’s removal of the abortion protections of Roe v. Wade in June was supposed to be a game changer for Democrats who would increase the turnout of angry voters eager for a Democratic Congress to balance the new conservative court. In recent weeks, however, abortion has declined as a voting issue, moved by that old power, the economy, stupid.
New analysis from Moody’s Analytics singles out real disposable income and inflation-adjusted home values as the two economic indicators that best predict the fate of the incumbent party in the midterm elections . Home values should be a Democratic asset. Prices have increased by 13% year on year, while inflation is 8.2%, for real earnings, adjusted for inflation of around 5%. That’s usually great news for incumbents.
[Are you voting Republican because of the economy? Tell us why.]
But COVID-related distortions undermine the value of the hot housing market for incumbent Democrats. As the pandemic demand for real estate increased in 2020 and 2021, rising prices became a windfall for sellers and owners. Buyers, however, faced sticker shock, with many priced out. Now they are getting whiplash as the Fed raises interest rates, to fight inflation. Rising rates and still high prices have produced an affordability crisis, with the Oxford Economics housing affordability index at its worst level since 2007, which was the peak of the last housing bubble. houses. A bumpy housing market confuses voters, rather than reassures them.
As for real income, by some measures, it is close to a record low. Real income fell 4.5% from a year ago, on a seasonally adjusted basis, according to government data. The average quarterly change going back to 1970 is an increase of 3.1%. So this is a particular pain point for consumers right now. This chart tells the story:
To understand what’s going on with incomes, ignore the unprecedented increases and decreases that occurred in 2020 and 2021, as workers exited the labor force, then returned. Instead, note where real incomes leveled off as the labor market returned to normal. Real incomes have fallen by more than at any time during the past 60 years, including the period in the 1970s and early 1980s when inflation was even higher than it is now. Wages will likely catch up with inflation over time, but right now the typical worker is falling far behind.
Here’s another way to see the problem for Democrats. For the Yahoo Finance Bidenomics Report Card, we track real income and five other economic metrics under Biden, compared to previous presidents going back to Jimmy Carter in the 1970s at the same point in their presidency. Biden gets high marks for job creation, but he earns the lowest mark among eight presidents for average hourly earnings. Again, this is because inflation is higher than nominal wage growth, which erodes the purchasing power of the typical worker.
High gas prices have never been Americans’ biggest problem
Biden has been obsessively focused on gasoline prices, and recently announced, for example, that the government will continue to release oil from the strategic reserve in December, to help lower prices. Biden’s approval rating fell as gas prices rose to new highs earlier this year, then improved as gas prices fell.
But voters have economic worries well beyond gas prices, as they should: Housing and food costs account for a much larger portion of the typical family budget than gasoline. Food prices have increased by 13% year on year. Housing costs increased by 8%. Nominal earnings increased by only 5%. Paychecks are not keeping up with price increases.
While voters have shown less concern about gas prices in recent weeks, they remain nervous about the overall economy. “Americans’ views of the nation’s economy remain overwhelmingly negative,” Pew Research reported on October 20, with its latest poll showing that 82% of voters rate the economy as poor or fair. Only 17% say the economy is excellent or good. Seventy-three percent say they are very concerned about the price of food, slightly more than 69% very concerned about the cost of gasoline.
Gallup polls have shown that the economy is the most important issue to voters, by far, all year. And there was little change in inflation concerns, even as gas prices fell. In May and June, 18% of voters said inflation was their main concern. In September, it was 17%, which is hardly an improvement. The drop in gas prices has not convinced anyone that general inflation is falling. The share that says abortion rights are the most important issue, meanwhile, is just 4% — down from 8% in July.
There probably wasn’t much more Biden could have done over the last few months to combat food inflation or other price increases that left voters reeling. The president’s tools are limited to begin with, and it is the job of the Federal Reserve to address inflation through monetary policy. Fed rate hikes will probably do the job, eventually. But it will be too late to help the Democrats retain power in 2022. Until 2024, maybe.
Rick Newman is a senior columnist for Yahoo Finance. Follow him on Twitter at @rickjnewman
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