Since peaking at $5 a gallon in June, gas prices have gone President Biden’s way. A sharp drop in prices since then to about $3.80 a gallon has neutralized what looked like a disastrous liability for Biden and his Democratic incumbents.
Still, Biden’s party looks set to lose control of Congress in the Nov. 8 runoff election anyway. The Supreme Court’s gutting of Roe v. Wade abortion protections in June was supposed to be a game changer for Democrats, boosting turnout among angry voters eager for a Democratic Congress to balance a newly conservative court. In recent weeks, however, abortion has receded as a ballot issue, supplanted by the old allegiance, economics, stupid.
A 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 an incumbent party in the midterm elections. Domestic values ​​should be a democratic advantage. Prices are up 13% year-on-year, while inflation is 8.2%, representing a real, inflation-adjusted gain of around 5%. This would normally be great news for the incumbents.
[Are you voting Republican because of the economy? Tell us why.]
However, the distortions related to COVID are undermining the value of the hot housing market for incumbent Democrats. As pandemic demand for real estate surged in 2020 and 2021, skyrocketing prices came as an unexpected surprise to sellers and owners. But buyers faced sticker shock, with many being auctioned off. Now they’re getting the whiplash as the Fed raises interest rates to fight inflation. Rising rates and persistently high prices have created an affordability crisis, with Oxford Economics’ housing affordability index at its worst level since 2007, the height of the last housing bubble. A tumultuous housing market unsettles rather than reassures voters.
When it comes to real incomes, they are near record lows by some measures. Real incomes are down 4.5% on a seasonally adjusted basis from a year earlier, according to government data. The average quarterly change since 1970 is a 3.1% gain. So this is a particular problem for consumers right now. This chart tells the story:
To understand what’s happening to earnings, ignore the unprecedented jumps and dips that occurred in 2020 and 2021 as workers exited the labor force and then returned. Instead, notice where real incomes leveled off as the labor market returned to normal. Real incomes have fallen more than ever before over the past 60 years, including the 1970s and early 1980s when inflation was even higher than now. Wages will likely catch up with inflation over time, but right now the typical worker is lagging badly.
Here’s another way to see the Democrats’ problem. For the Yahoo Finance Bidenomics Report Card, we track real income and five other economic indicators under Biden compared to previous presidents going back to Jimmy Carter in the 1970s during the same period of their presidency. Biden gets high marks for job creation, but the lowest mark of the 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 the biggest problem for Americans
Biden has been obsessively focused on gasoline prices, recently announcing, for example, that the government would continue to release oil from the Strategic Reserve through December to help lower prices. Biden’s approval ratings fell when gas prices soared to new highs earlier this year, then improved when gas prices fell.
But voters have economic worries far ahead of gas prices, as they should: Housing and food costs make up a much larger portion of the typical family budget than gasoline. Food prices increased by 13% year-on-year. Housing costs rose by 8%. Nominal earnings increased by only 5%. Payouts do not keep pace with price increases.
While voters have shown less concern over gas prices in the past few weeks, they remain jittery about the overall economy. “Americans’ views of the nation’s economy remain overwhelmingly negative,” said Pew Research on Oct. 20, whose latest poll found that 82% of voters rate the economy as poor or fair. Only 17% say the economy is excellent or good. 73 percent said they were very concerned about the price of food, slightly more than the 69% very concerned about the price of gasoline.
A Gallup poll found the economy to be by far the most important issue for voters all year. And inflation concerns have changed little even as gas prices have fallen. In May and June, 18% of voters said inflation was their main concern. It was 17% in September, hardly an improvement. Falling gas prices have not convinced anyone that overall inflation is subsiding. Meanwhile, the share that says abortion rights is the most important issue is just 4% — down from 8% in July.
There probably isn’t much more Biden could have done over the past few months to combat food inflation or other price hikes that have angered voters. The president’s tools are limited to begin with, and the Federal Reserve’s job is to address inflation through monetary policy. A Fed rate hike is likely to do that eventually. But it will come too late to help Democrats retain power in 2022. By 2024, perhaps.
Rick Newman is a senior columnist for Yahoo Finance. Follow him on Twitter at @rickjnewman
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