Why U.S. Consumers Could Impact Biden’s Re-Election Prospects
Summer has ended. Children are returning to school, employees are returning to their employment, and the 2024 campaign is heating up. Joe Biden is promoting “Bidenomics” to voters, boasting of job growth and, at long last, a genuine income increase.
But Americans, who have been spending wildly on vacations, dining out, and travel, may soon dampen Joe’s celebrations. Consumers are financially strained, having financed their summer vacations and post-pandemic expenditures by saving less and borrowing more – a trend that is not sustainable. People have been willing to amass debt because employment has been abundant and they have not feared a precipitous loss of income. This seems to be altering.
As election season approaches, plummeting consumer confidence, rising debt delinquencies, and a weakening job market indicate that the celebration may soon come to an end as the economy hits an unanticipated rough stretch.
Given that the current Real Clear Average of polls on the president’s management of the economy reveals only 38% approval and 58% disapproval, a recession could devastate his reelection chances.
A recession is not predicted by the majority. The economy has remained resilient despite aggressive rate increases by the Federal Reserve, largely due to unexpectedly robust hiring.
However, the employment market is now obviously sputtering, albeit at a rapid rate. In August, employers added 187,000 positions, which is significantly less than the monthly average of 271,000 over the past year. Recent months’ reported employment additions have been severely revised downward in light of the steep decline in job growth. In addition, wage growth slowed last month. This is what the Federal Reserve hoped to accomplish with its aggressive interest rate increases. The question is whether recruiting will stall or layoffs will occur.
Employers across the nation have defied forecasters for months by continuing to hire or retain workers despite declining corporate profits. After the pandemic shutdowns, it had been difficult for businesses to increase their workforce, and they were taking no chances of confronting a labor shortage once more.
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Signs of Labor Market Shifts and Economic Concerns Amidst Optimism
If the labor market weakens, CEOs will likely alter their strategies; this may already be occurring. In July, according to the most recent JOLTS report, the number of job openings decreased by 338,000 to 8.8 million. In addition, the number of “quits” decreased by 7%, indicating a decline in worker confidence. While still very low, the number of unemployed per job opening has begun to increase.
In August, the unemployment rate increased to 3.8% from 3.5% in July, due in part to a favorable increase in labor participation, which indicates that more people are now actively seeking employment. This rise is the result of a continuing decline in the quantity of COVID-related benefits, including the imminent resumption of interest payments on student loans following a three-year hiatus. The labor force participation rate has increased to 62.8%, but has not yet reached the pre-pandemic level of 63.2%.
According to the Conference Board, consumer confidence fell the most in two years last month. The chief economist of the board stated, “Assessments of the present situation dipped in August on receding optimism around employment conditions: fewer consumers said jobs are “plentiful” and more said jobs are “hard to get.” The melancholy was exacerbated by persistent inflation and rising interest rates on borrowings, with credit card rates now exceeding 20%.
The decline in optimism affected virtually all age and income brackets. It is unsurprising that Americans with lower incomes are becoming more pessimistic; this group has been particularly hard struck by rising prices for necessities such as food and housing.
A recent survey conducted by the Census Bureau revealed that 42% of households that rely on the Supplemental Nutrition Assistance Program (or SNAP) are foregoing meals due to a lack of funds; 55% reported consuming less to make ends meet, which is double the number from the previous year.
The default rate on consumer debts, particularly auto loans, has risen above 2 percent as a result of financial strain. The increase in delinquencies is most pronounced among Americans with low incomes who possess so-called “subprime” loans. During the financial crisis, 5 percent of subprime borrowers were 60 days or more delinquent on their loans; this figure is now close to 7 percent, according to the Washington Post.
As Americans’ debt reaches record heights, the quantity they save plummets. The difference reflects increased borrowing and a decline in the savings rate to 3.5%, which is significantly below the historical average of 8.9% from 1959 to 2023 and the 4.7% level recorded in May of this year.
The Conference Board’s leading indicator index, a reliable forecasting instrument, has declined for sixteen consecutive months; the decline accelerated in August. Also concerning is the inverted yield curve, which is a reliable indicator of a downturn with up to a year’s notice.
The majority of analysts have given up making pessimistic forecasts because they have been proven incorrect over the past year. However, the current optimistic consensus is concerning. As top economist Ed Hyman of ISI continues to remind clients, prior to the Great Recession, the economy was booming… until it wasn’t.
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Source: Fox News
