How inflation can ‘sink’ President Biden

The Biden government is right to claim that the US is enjoying the strongest – worldwide – economic recovery from the pandemic crisis, citing a long list of measurements and data: low unemployment, higher wages, record (with 6.4 million) jobs created in 2021. A number, however, could “erase” the above positive indicators: 7%. It is the highest increase in inflation on an annual basis since 1982.

Republicans are rushing to take advantage of the fact and tactics are paying off. A year after taking office, Biden sees his acceptance rates fall and consumer confidence plummet to its lowest level in decades.

We looked at the measurements that summarize the state of the American economy after a year of Biden rule. Let’s see them in detail:

Inflation

Rising prices could bring second thoughts on Biden’s economic success. The 7% rise in consumer prices is already “sabotaging” the president’s spending program – which can only be compared to Roosevelt’s spending. Republican Sen. Joe Manchin did not support Biden’s $ 2 trillion domestic spending package. dollars- and then gave him the free kick, citing inflation as the cause. The US president claims that the increase in wages is a sign of economic recovery, but this story is not easily passed on to households that find it difficult to shop or fill the tank, even if their salaries have increased.

In addition, inflation is leading the Federal Reserve to raise interest rates in 2022, after at least a decade of keeping them near zero. Goldman Sachs expects four interest rate hikes this year, while last week billionaire investor Bill Ackman urged the Fed to cause “market shock and awe” by raising interest rates by 50 basis points, twice the expected increase, joining his voice to those calling on the Federal Reserve to act quickly.

Work

The unemployment rate has fallen close to pre-pandemic levels. Before Biden took office, unemployment was 6.7%. Today it is at 3.9%. With 10 million job vacancies, the problem for employers is the “Big Resignation”. Four and a half million workers quit their jobs in November, raising their monthly layoff to a record 3% from 2.3% at the beginning of Biden’s presidency.

“People are talking about it as bad news,” said Dean Baker, co-founder of the Center for Economic and Political Research. “I guess for employers it really is, but I’m more interested in employees who feel they have the opportunity to quit a job they do not like and find a better one. In my opinion, that’s a great deal.”

Energy crisis

Crude has risen 62% to $ 86 a barrel since Joe Biden was sworn in, more than seven years old. Gasoline prices have almost doubled in the last year, reaching $ 3.30 a gallon, while heating costs for gas-using households are expected to increase by 30% compared to last winter.

GDP

Real GDP growth of 5.6% – expected to be announced next week – will be the biggest “jump” on an annual basis since 1984. However, the rapid growth of the economy has slowed since the first half of the year. 2021, when the launch of the vaccination campaign revived consumer and business spending. Real GDP growth exceeded 6% in the first two quarters of 2021, but slowed to 2% in the third quarter, with the US Rescue Plan – 1.9 trillion. – which was voted last March not to live up to the expectations of the Democrats.

“The American Rescue Plan has been a major political mistake that haunts us to this day,” said Douglas Holtz-Eakin, a former director of the Congressional Budget Office. “Biden signed it into law when the economy was growing at a rate of 6.5%. He did not need to sign it.” Holtz-Eakin, who was chief financial adviser to John McCain’s presidential campaign in 2008, gives Biden a “bad grade” for his handling of the economy.

Shares

Republican Donald Trump, Biden’s opponent in the 2020 election, warned that the stock market would collapse if Biden is elected, but this proved to be nothing more than election rhetoric. The S&P 500 has risen 19% in Biden’s first year in office, although the president is reluctant to take pride in it, unlike his predecessor, perhaps because he knows he can not control the index. He may also not want to be seen as responsible for S&P performance in 2022. The index is already falling 5% since the beginning of the year.

Bonds

The spike in inflation and the impending rise in interest rates have pushed up government bond yields to pre-pandemic levels. The 2-year government bond topped 1% this week, at 0.13% when Biden took office. The 10-year yield increased by 31 basis points in January, to 1.83%. A small difference between the yields on short-term and long-term bonds usually signals financial uncertainty, although economists expect the yield on the 10-year bond to exceed 2% this year.

Consumer climate

Despite the stock market rally and strong employment data, Americans are in the worst phase of frustration in 10 years. The consumer climate index, according to the University of Michigan, stood at 67.4 points in November 2021, the lowest level since 2011. The most recent measurement in January showed an increase to 68.8 points. The measurement was at 79.0 points when Biden took over the country in January 2020 and the consumer climate strengthened during the first months of his term. However, inflation and coronavirus mutations have shattered consumer confidence.

Business bankruptcies

Hertz, JCPenney and Chesapeake Energy were among the 7,129 U.S. companies that filed for bankruptcy in 2020, a number that marks a high of 8 years as the pandemic caused economic shocks. This rate was halted in 2021, with small businesses supported by government spending and emergency loan write-off programs. Just 3,724 companies filed for bankruptcy in 2021, the lowest level in at least four decades, according to the American Bankruptcy Institute. Belk and the National Rifle Association were among the companies that went bankrupt in 2021.

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