President Biden and his staff are enjoying what is arguably the best economic data ever during his presidency. Inflation is cooling, business investment is picking up, job growth is accelerating and surveys are pointing to rising consumer and voter confidence.
Polls still show Mr. Biden remains under pressure in his handling of the economy, with voters disapproving rather than applauding his performance. Still, there are signs that voters could lighten their assessment of the economy under Mr. Biden, in part due to the increasing impact of the infrastructure, manufacturing and climate bills he signed into law.
The torrent of positive economic news comes as his government has Bidenomics to thank for an ongoing string of positive data.
The economy grew at an annual rate of 2.4 percent in the second quarter of the year, the Commerce Department reported last week, significantly exceeding economists’ expectations. Price growth slowed in June even as consumer spending picked up. The Federal Reserve’s preferred measure of year-on-year inflation, the Personal Consumption Spending Index, has fallen from about 7 percent last June to 3 percent this year – putting pressure on Mr. Biden over the economic woes affecting his presidency have charged, reduced so far.
And in a less visible but significant way, there are signs that Mr. Biden’s signature economic policies may be beginning to bear fruit, most notably in a sharp surge in factory construction. Government data released on Tuesday showed the boom continued in June, with spending on manufacturing equipment rising nearly 80 percent year-on-year. Manufacturing as a whole has added nearly 800,000 jobs since Biden took office and now employs the most people since 2008.
“The policy changes that have taken place over the last two years are now beginning to be reflected in the data,” said Joseph Brusuelas, chief economist at RSM. He said the increased investment was “undoubtedly” related to government policies, particularly the CHIPS law aimed at boosting domestic production and the Inflation Reduction Act aimed at low-emission energy technologies to combat climate change.
Perhaps most encouraging for Mr. Biden as he prepares for his re-election campaign is consumer confidence rising to levels not seen since the first few months of his tenure in the White House, before inflation was soaring. Measurements from the University of Michigan and the Conference Board suggest that consumers are happier with the current economic climate and more hopeful for the year ahead.
This shift in attitudes may reflect an underlying economic reality: the combination of falling inflation, low unemployment, and rising wages means that American workers’ living standards are improving. Hourly wages outpaced price increases in the spring for the first time in two years, giving consumers more purchasing power.
National opinion polls still show poor economic sentiment – but it appears to be improving slightly.
In a new New York Times/Siena College poll, 49 percent of respondents rated the economy as “poor,” compared to 20 percent who called it “excellent” or “good.” That’s an improvement from last summer, when 58 percent of Americans in another Times/Siena poll called the economy “poor” and just 10 percent rated it “excellent” or “good.”
Government officials attribute the strength of the economy, particularly in the labor market, to the direct aid to individuals, businesses and state and local governments included in the $1.9 trillion stimulus package Mr. Biden signed into law in 2021.
Economists generally blame the same stimulus package for some of the rapid rise in inflation, much of which happened after it was passed. But the recent slowdown in price growth encourages officials to call the bill a more positive factor, as it helped keep consumer spending and businesses afloat and accelerated the return to a low unemployment rate.
“The US bailout plan was designed both to get the economy moving again and to ensure that there was enough headroom to meet the challenges that we may face,” said Heather Boushey, member of Mr biden said in an interview. “And that, I think, has been very, very successful in getting people back to work. In terms of job creation, this was the strongest rebound in decades. We have outperformed our economic competitors.”
Business officials inside and outside of government are warning that risks remain as policymakers seek a so-called soft landing to curb soaring inflation without triggering a recession. And many Republicans dispute the president’s claims that his policies have boosted the economy. They note that inflation remains well above historical averages and that wage increases under Mr. Biden have not kept pace with rising prices for many American workers.
“Even if inflation is ‘lower,’ those prices aren’t going down,” Florida Gov. Ron DeSantis, a Republican presidential candidate, told Fox News this week. For a middle-class family, “it’s unaffordable to buy a home,” he said. “If you compare median income to median house price, there is a bigger gap than there was when the financial crisis hit after the big housing growth in 2006-2007. Cars are becoming more and more affordable; People feel that pressure.”
Some forecasters, including the Conference Board, continue to expect the economy to slip into recession by year-end. They cite indicators that have often pointed to downturns in the past, most notably the rapid decline in lending from both small and large banks.
The tightening of credit conditions, as reported by the Fed this week, “is consistent with a deceleration in GDP growth into recessionary territory in the coming quarters,” researchers at BNP Paribas wrote this week.
Still, most independent economists agree that the US recovery has been stronger than expected. They are less agreed on how much credit Mr. Biden’s policies deserve for this. They say the fall in inflation is largely the result of the Fed’s aggressive effort to fight it, helped by some luck as oil prices have fallen and disruptions from the pandemic have eased.
The resilience of the job market — and the strength of the broader economy — is almost certainly a result, at least in part, of the trillions of dollars in aid money the federal government pumped into the economy in 2020 and 2021 that helped prevent what was coming to widespread bankruptcies, foreclosures, and corporate bankruptcies that hampered the recovery from the Great Recession of a decade and a half ago. But much of that fell under President Donald J. Trump, and economists are divided over how specifically Mr. Biden’s stimulus package has helped the recovery.
Still, recent economic developments seem to validate one of the arguments Democrats made early in Mr. Biden’s tenure: that the risks of doing too little to help the economy outweigh the risks of doing too much. Too little help could leave the US economy facing another “lost decade” of slow growth, similar to that seen after the last recession. Too much aid could lead to inflation – but that, unlike slow growth, is a problem the Fed knows how to solve.
There are also risks in the coming months. Inflation could pick up again, especially if oil prices continue to rise as they have in recent weeks. The labor market could deteriorate, leading to a sharp rise in unemployment. Many forecasters still expect a recession to start this year or early next.
It’s always difficult to draw a direct line from government policy to economic outcomes, especially in real time. But recent economic data seemed at least consistent with the Biden administration’s theory about the impact of its policies on the economy.
Administration officials point in particular to what they have come to call the “hockey stick graph”: a precipitous rise in investment in factory construction over the past two years, which they attribute to spending and tax stimulus in several bills that Mr. Biden advocated and signed the law. These include bipartisan measures to boost infrastructure and advanced manufacturing, as well as a law passed by Democrats last year, when they controlled Congress, that was heavily focused on promoting new developments in low-emission energy technologies to combat climate change.
Private sector analysts largely agree that politics has played an important – albeit difficult to quantify – role in the manufacturing boom in recent months. This, in turn, has contributed to a surprise increase in business investment in general, which helped boost economic growth in the spring, even as consumer spending slowed.
Even Treasury Department officials are acknowledging significant risks to the economy in the coming months. In private, many of Mr. Biden’s advisors express at least some uncertainty as to whether a soft landing is now guaranteed.
But the combination of solid growth, low unemployment and cooling inflation has made forecasters increasingly optimistic that the United States can avoid a recession that many once thought was inevitable.
“You have to look at that and say the probability of a soft landing has increased,” said Jay Bryson, chief economist at Wells Fargo.