WASHINGTON (AP) – The US economy faces a slew of threats: war in Ukraine, high grocery bills, rising gasoline prices, sagging supply chains, a lingering pandemic and rising interest rates that slow growth.
Biden is betting the White House that the US economy is strong enough to withstand these threats, but fears of an imminent economic downturn are rising among voters and some Wall Street analysts.
The next few months will test whether President Joe Biden built a sustainable recovery full of jobs with last year’s $1.9 trillion relief package, or more government aid to an economy that could slide into recession. The line for Democrats ahead of the midterm election is whether voters see firsthand in their lives that inflation can be contained and the economy can manage to run hot without overheating.
Brian Deez, the director of the White House National Economic Council, told reporters this week that the 3.6% unemployment rate and last year’s strong growth put the US in a safer place than the rest of the world.
“The main question is whether the strength of the US economy is now an asset or a liability,” Deez said. “What we’ve done during the past 15 months, driven by a uniquely strong economic recovery in the United States, puts us in a uniquely well positioned position to address the challenges ahead.”
But others see an economy that may struggle to maintain growth while bucking inflation, now running at a 40-year high of 7.9%. The Federal Reserve has signaled a range of benchmark interest rate hikes and other policies to slow inflation this year, yet Russia’s invasion of Ukraine has destabilized global energy and food markets in ways that could affect prices. can be extended upwards.
Deutsche Bank on Tuesday became the first major financial institution to predict a US recession. And Harvard University economist Larry Summers – a Democrat and former Treasury secretary – noted that the US economy went into recession within two years, each time assuming inflation was 4% and unemployment was below 5% as they are now. Huh.
Joe LaVorgna, who worked in the Trump White House and is now America’s chief economist at Natixis, said he expects economic growth this year to be less than 1%, a potentially dangerous level.
While household balance sheets are solid and unemployment is low, wages are not in line with inflation, which could lead to lower consumer spending. And supply chain disruptions and higher energy costs will be additional drag.
“The reason for the slowdown when the economy is growing at 1% is because it’s like a weakened immune system,” LaVorgna said. “Any negative event, even a minor one, is going to get you out of the way and the stall speed becomes a deceleration.”
Still, LaVorgna also expects any recession to be mild, due to a strong labor market and household savings.
So far, consumer spending has been healthy, even if the public views the economy as anemic.
According to a survey last month by the Associated Press-NORC Center for Public Affairs Research, nearly 7 in 10 Americans believe the economy is in bad shape. Yet Bank of America noted that overall debit and credit card spending in March was up 11% from a year earlier, and its analysts concluded that homes are “strong enough to withstand the storm provided it doesn’t last very long.” Do not continue for a long time.”
According to AAA, there are also signs that consumers are adjusting as higher oil prices push average gasoline costs up to $4.15 per gallon. Gas costs have dropped over the past week, but they are still 45% higher than a year ago.
One consequence of higher prices is that Americans began to use less oil and gas. The US consumed an average of 21.9 million barrels daily during the first full week of February; That figure fell 9% to 19.9 million barrels during the first week of April, according to the Energy Information Administration. The decline is larger than the general seasonal decline in 2019, the last full year before the pandemic. Gasoline use declined by more than 6% during the same period.
A recent Goldman Sachs research note stood out to Biden administration officials as it suggested job growth and wage increases would provide relief to the economy from higher commodity prices. Because of the strong labor market, the economy is better protected from commodity shocks than the recessions of 1974, 1980 and 1990, as well as the financial crisis of 2008.
The White House has watched with some dismay as public conversations about the economy have been reduced to inflation, believing it largely ignores labor market forces and the idea that the family previously provided coronavirus. Because of the relief are able to manage the higher prices. ,
The administration believes the Fed rate hike this year as well as a fall in deficit spending will help moderate inflation. But the important message the White House wants to deliver in response to the public’s fears about the economy is that Biden understands their concerns.
The challenge, however, is that many Americans are so focused on inflation that they believe the job market – and the broader economy – is in fact weak. That means the White House has to make a nuanced case in which it recognizes economic vulnerabilities but repeatedly reiterates the low unemployment rate so that it pops into the public eye.
Doubts about the economy – despite solid jobs numbers – “are a sign that we need to continue to make that matter clear and unambiguous,” Deez said.