Since peaking at $5 a gallon in June, gasoline prices have gone President Biden’s way. The sharp price drop since then, to around $3.80 per gallon, has neutralized what was looking like a catastrophic liability for Biden and his accommodating Democrats.
Still, Biden’s party looks set to lose control of Congress in the November 8 midterm elections anyway. The Supreme Court’s overturning of Roe v. Wade abortion protections in June was supposed to be a game-changer for Democrats that would boost the turnout of angry voters eager for a Democratic Congress to counterbalance the newly conservative court. In recent weeks, however, abortion has been received as a voting issue, displaced by the old stalwart, the economy, stupid.
New analysis from Moody’s Analytics isolates real disposable income and inflation-adjusted home values as the two economic indicators that best predict the fate of the incumbent party in midterm elections. Home values should be a democratic advantage. Prices are up 13% year over year, while inflation is 8.2%, for a real, inflation-adjusted gain of around 5%. This would normally be 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 demand for real estate skyrocketed in 2020 and 2021, the rise in prices became a windfall for sellers and owners. Buyers, however, faced sticker shock, with many priced out. Now they’re getting whiplash as the Fed jacks up interest rates to combat inflation. Rising rates and still high prices have created an affordability crisis, with the Oxford Economic Housing Affordability Index at its worst level since 2007, which was the peak of the last housing bubble. A bumptious housing market unsettled voters, rather than reassuring them.
As for real income, by some measures, it is near record lows. Real incomes were down 4.5% from a year ago, on a seasonally adjusted basis, according to government data. The average quarterly change back to 1970 is a gain 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 spikes and declines that occurred in 2020 and 2021, when workers flooded out of the workforce, and then returned. Instead, notice where real incomes have leveled off as the labor market has returned to normal. Real incomes have fallen by more than at any time in the past 60 years, including the period in the 1970s and early 1980s when inflation was even higher than it is now. Wages will probably catch up with inflation over time, but right now the typical worker is falling behind significantly.
Here is 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 typical worker’s purchasing power.
High gas prices have never been America’s biggest problem
Biden is obsessively focused on gasoline prices, just recently announcing, for example, that the government will continue releasing oil from the strategic reserve in December, to help stamp the price down. Biden’s approval rating fell as gas prices soared to new peaks earlier this year, then improved as gas prices fell.
But voters have economic concerns beyond gas prices, as they should: Housing costs and food costs make up a much larger portion of the typical family budget than gasoline. Food prices are up 13% year-over-year. Housing costs are up 8%. Nominal earnings are only up to 5%. Paychecks are not keeping up with price hikes.
While voters have shown less concern about gas prices in the past few weeks, they remain nervous about the overall economy. “American 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 the 69% who are very concerned about the cost of gasoline.
Gallup polling has shown that the economy is the most important voter issue, by far, all year. And there has been little change in concerns about inflation, even as gas prices have plunged. In May and June, 18% of voters said inflation was their main concern. In September, it was 17%, which is hardly an improvement. Falling gas prices have not convinced anyone that overall inflation is receding. The share that says abortion rights are the most important issue, currently, is just 4% – down from 8% in July.
There probably isn’t much more Biden could have done in the past few months to combat food inflation or other price hikes that have bummed voters out. 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 come too late to help Democrats keep power in 2022. Until 2024, maybe.
Rick Newman is a senior columnist for Yahoo Finance. Follow him on Twitter @rickjnewman
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