The Republicans should borrow a page from the Democratic playbook and have signs printed up saying, “It’s the economy, stupid,” plastering them all over the country. The mirage of the Biden economy is beginning to dissipate as $5 trillion in stimulus spending peters out and the economy begins to slide into what will hopefully be a short recession.
The pre-COVID economy gave Biden a solid foundation that he promptly squandered in trillions of dollars of wasteful and unnecessary spending. His “stimulus” ended up stimulating inflation that destroyed ordinary people’s savings and reduced the standard of living for millions of Americans.
The economy grew 3.2% from July through September and 2.6% from October through November. The latest GDP number shows sluggish growth of 1.1% — and the biggest news out of the BLS is the pummeling taken by the housing market.
“This morning’s data was the worst of both worlds, with growth down and inflation up,” Chris Zaccarelli, chief investment officer for Independent Advisor Alliance, said in a client note.
The Fed has raised interest rates nine times over the past year as Jerome Powell has put the screws to the economy hoping to tame inflation. Inflation has come down some, but the underlying numbers are terrible, leading to an expectation that the Fed’s rate hikes aren’t done yet.
An economic model used by the Conference Board puts the probability of a U.S. recession over the next year at 99%.
Across the financial industry, the overwhelming consensus is that the economy will struggle this year, with more than a dozen big banks in recent weeks forecasting little or no growth — or even a recession — as the Federal Reserve drives up interest rates to kill inflation.
And fresh risks loom for Biden’s reelection campaign economy, including a potentially market-shaking fight over raising the debt limit and the risk of a banking industry meltdown that’s causing lenders to tighten up on credit.
“The U.S. economy is unwell, and it’s starting to show,” Gregory Daco, chief economist at EY-Parthenon, tweeted Thursday morning.
“Today, we learned that the American economy remains strong, as it transitions to steady and stable growth,” the president said in a prepared statement. “This past quarter, real personal disposable income increased and American consumers continued to spend, even as the overall pace of growth moderated.”
Not quite “Morning in America,” but it’s hard to get the pig to stay still long enough to apply the lipstick.
And even some Biden allies like former Treasury Secretary Larry Summers are warning that the economy will have to decline significantly to finally break the back of inflation.
“I think we’re going to have difficulty getting near a 2 percent inflation target until and unless the economy slows down substantially,” Summers said at an investment conference this week.
The latest reading on the economy was driven by a declining housing industry slammed by higher interest rates. Consumer spending remained resilient but is also likely to come under more pressure as Covid-era savings run out and inflation continues to pinch wallets. And the report showed inflation rising, not falling as the Fed expects, meaning another rate hike is likely when central bank policymakers meet next week.
Biden will point to the COVID stimulus artificial growth numbers as a sign of success. Instead, it’s a massive failure. Five trillion dollars and this economy is the best the government can do?
Denying reality won’t prevent a recession.
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