Bidenomics: A roaring economy still filled with unease

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"What will it take for Americans to stop worrying" about the economy? asked Catherine Rampell in The Washington Post. The Commerce Department last week produced another stunning report on gross domestic product, saying U.S. economic output grew at an annual pace of 4.9% in the third quarter. This is stellar. It’s "more than double the pace from the prior quarter and light-years higher" than what most economists predicted. Despite the damage wrought by COVID, the U.S. economy is even exceeding the most authoritative “forecasts made before the pandemic began.” That’s not true for other countries, whose economies still lag well behind their pre-pandemic forecasts. The GDP report follows strong job numbers, as well as more data showing inflation subsiding. Yet surveys keep finding that Americans give President Biden little credit on the economy and "are about as negative about the economy today as they were during stretches of the Great Recession."

A quarter of economic numbers is not the whole story, said Zachary Warmbrodt in Politico, and the great numbers could mark a peak. "Borrowing costs are rising, pandemic financial buffers are being drawn down and student loans are coming due — not to mention the hot wars playing out in the Middle East and Ukraine." This might be as good as it gets for Bidenomics for the near future. But we’re not even close to a recession, said Rick Newman in Yahoo Finance. And yet confidence levels, according to the University of Michigan’s consumer sentiment survey, have "worsened for three months in a row, as if inflation is getting worse, not better." It’s like voters have "dropped into a parallel universe where the skies are stormy even when the sun is out."

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That’s not as unusual as you might think, said Ramesh Ponnuru in The Washington Post. Over the past 30 years, Gallup has found only two periods when "most Americans considered the economy good: from late 1997 through early 2001 and from mid-2018 through March 2020." What sets these two happy periods apart from other times is that real wages, adjusted for inflation, were rising. Today, thanks to soaring inflation, average real wages are roughly 3% lower than when Biden took office. That "strongly suggests that Americans will not consider the economy to be performing well unless their paychecks rise faster than their bills."

Americans are doing much better financially since the pandemic, said Noah Smith in his Substack newsletter, Noahpinion. In October, the Fed and the Treasury reported that the typical American family got 37% richer between 2019 and 2022. This translates to a $51,800 bump for the median American household. And "despite the fact that interest rates went from around 0% to over 4% over the course of 2022, wealth still went up." On the flip side, a lot of this new wealth came from increases in the value of an illiquid asset, housing, said Allison Schrager in Bloomberg. The bottom 50% of Americans indeed gained some wealth "but still don’t have much liquidity, and inflation has eroded their savings." This makes them and the U.S. economy, vulnerable if the job market cools off. It’s why this gangbuster economy still doesn’t feel sustainable.

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