Election Factor One: The Economy

Part 1 of a series examining some major factors that will help determine the outcome of the presidential election in 2024

Photo: Jonathan Ernst / Reuters

With the news a bit light this week and the new year approaching, I thought it might be useful to step back and look at some of the factors that will affect the national election in 2024. 

Today’s topic is the economy. In discussing it, I want to highlight two distinct things: how the economy is actually faring overall, and how it is perceived by most Americans to be faring. 

If you’ve witnessed the headlines and head scratches from economists lately, you already understand that these are two fairly divergent matters. And when it comes to elections, it is perception that matters more.

First, a disclaimer. It is difficult to write anything about the objectively strong economy without garnering a great deal of pushback. This is both understandable and a difficult line to walk, including for Joe Biden. After all, even in any good economy, there are going to be millions of people for whom it is not working at all. Convincing them that the economy is healthy when their own economic situation feels dire is a tough sell, and I can state from experience that attempts to explain this can really piss some folks off.

But there is more at work here than that. Numerous studies have shown that even those Americans who rate their own economic situation as fair to good—a group that makes up most respondents—still rate the rest of the economy as poor to terrible. That’s a disconnect no one has been able to explain adequately yet, despite many theories.

Before we jump in deeper, there is some baseline good news for Biden that nearly everyone can agree on: The recession that was once foretold as inevitable, due to a series of bruising hikes in interest rates by the Fed, did not ever materialize. And it is now very unlikely to happen in 2024. That means our democracy has dodged the worst case scenario of going into an election for its survival with the economy actually shrinking. Nothing fuels fascist populism more than a bad economic downturn.

Let’s first take a closer look at why economists are now in general agreement that the economy is strong and thriving. We’ll look at some key macro figures and compare them to how Trump fared with the same during his time in office. It’s a bit of a wonky comparison, admittedly, because of the distortions of the pandemic. But we can still draw some inescapable conclusions.

Then we’ll survey public sentiment readings, which continue to show that Americans remain down on the economy, despite the good numbers. We’ll look at some of the main theories about why this is, and without settling on any one of them as the main culprit, we’ll explore how each might play out in 2024. Again, in my view, the news is generally good for Biden’s electoral chances.

Pledge break reminder: I have a new year’s sale running!

The economy by some numbers

The Washington Post recently ran a side-by-side comparison of Biden and Trump when it came to the nation’s economic performance during their terms. I won’t go through all twelve points, but I did want to highlight a few and expand a bit on them.

Job growth. Biden gets the medal as the Jobs President. The economy added a whopping 14 million jobs in less than three years and, importantly for his reelection chances, Black unemployment fell to a record low. 

But isn’t all this just recovery from the pandemic? Does he really get to count that rebound? The answer is largely yes. Most economists predicted a much longer recovery period with higher unemployment. Biden has blown past their expectations. Even well over two years after the worst of the pandemic, job creation remains high, with 199,000 new jobs in November. That’s still more than 10 percent higher than the average rate under Trump before the pandemic. Biden’s policies, which led to investments in manufacturing, infrastructure and green energy, are helping to fuel this boom in jobs.

Unemployment. Rates of unemployment were low under Trump pre-pandemic, and post-pandemic they have remained low under Biden. The rate recently reached a historic low of 3.4 percent before rising a bit to 3.7 percent. A key detail is who is participating in the workforce. Under Biden, rates of unemployment for Hispanics, Black women and people with disabilities have all hit record lows.

When I have cited the low unemployment rate in my work, it has been common for people to respond that this is probably because people have just stopped looking, or are working two or more jobs. While this has some emotional appeal, two facts cut against these claims. 

First, the rate of worker participation is around what we have seen historically, currently at 62.8 percent, which is just a hair under the historic average of 62.84 percent. There is no data supporting the theory that a huge number of Americans have simply checked out of the economy. The same goes for key subgroups, including women who were bumped out of the workforce in large numbers during the pandemic. Their rate of participation has returned to pre-pandemic levels. 

As for the multiple jobs argument, in pre-pandemic America the share of Americans working two or more jobs reached 5.3 percent in the summer of 2019 under Trump. This figure plunged during the pandemic, but has slowly crept back up. As of November 2023, that figure is now 5.2 percent. So while it is still very difficult for millions of Americans having to work multiple jobs, particularly in light of higher inflation, it isn’t accurate to say that there is now a higher percentage of Americans in the workforce who are working multiple jobs than before the pandemic under Trump. The percentage is actually slightly lower.

Economic growth. Here again, the U.S. economy has achieved what no other major Western economy has post-pandemic: strong economic growth, low unemployment and falling inflation. Gross Domestic Product (the total value of goods and services produced) has grown 22 percent under Biden, while it grew 14 percent under Trump. Notably, there have now been five straight quarters of growth following the pandemic slump, with a big leap last quarter of 4.9 percent. 

Inflation and some key prices. Here is where Biden has had it tough. Most Americans understand that the president isn’t responsible for inflation, especially when caused by systemic supply chain shocks, overseas conflicts and corporate price gouging. There’s only so much the White House can do. Nevertheless, when rent, groceries and gas prices shot up, Americans soured on the economy in general. It hit working class Americans the hardest, and that’s where we’ve seen some significant erosion of support for President Biden.

Inflation peaked in 2022 around 9 percent and has been falling steadily since. It currently sits around 3 percent. It bears repeating that this lower figure doesn’t mean prices have generally fallen; rather, it means prices overall are only about 3 percent higher than they were a year ago at the same time. 

Many Americans want to see prices actually fall, which is a very different outcome than prices not rising as fast. But actual system-wide deflation is neither expected to happen nor would it be a good thing for the economy. After all, if consumers expect prices for things like cars and big ticket items to come down significantly, they are likely to delay their purchases and wait it out, causing the economy to shrink. 

That said, the prices of eggs, gas and homes have come down lately, and that could lift the general economy. People buy eggs and gas every week, and dream about affording homes. If daily living and long term planning both seem more doable, that can shift the nation’s mood considerably. More on that later.

Interest rates and markets. In response to high inflation, the Fed hiked rates rapidly, raising borrowing costs considerably and tanking things like stock equities because access to money got a lot more expensive. Those with variable mortgages and high revolving debt were hit hardest. As a result, Biden has been associated—a bit unfairly because this is all due to the Fed, not the White House—with high interest rates. But lately, the Fed has signaled that it is done raising rates and that inflation is near to the levels it would like to see. 

It even suggested that rate cuts might be in the works next year, sending the markets soaring to new highs. The value of IRAs and 401Ks jumped as a result, as money poured back into equities. Trump had predicted a stock market crash under Biden and a major depression. To the contrary, the markets are booming, and many middle class families, at least on paper, are now wealthier than they were under Trump.

Perceptions of the economy

With inflation tamed, interest rates leveling off, high growth, low unemployment, lower gas and grocery prices, and markets at record highs, you would think more Americans would be positive on the economy. And they are in fact acting as if it is quite good. Consumer spending is strong, and new businesses are starting at the highest rates since the census started tracking data. That simply doesn’t happen in a down economy.

And yet, to his considerable frustration, Biden gets very low scores on the economy. Most Americans believe things were great under Trump and that he would do a better job on the economy, even though the numbers don’t support this.

So what’s going on? 

First, we haven’t had inflation like we saw in 2022 in over 40 years. And on things like rent and groceries, which are some of the largest factors in every family’s household budget, we saw prices rise over 20 percent in four years. The shock of that has not worn off, and prices have not come down much on rents. It takes time for rising real wages to catch up, even after inflation has cooled back down to more or less normal levels. 

Second, wage increases usually happen once a year, and so the effect of finally having a bit more money to spend hasn’t been felt by everyone. Meanwhile, while rents have fallen modestly in most markets this fall, most of the benefits of that won’t be felt by tenants until their leases are up.

Third, not everyone is convinced that prices will remain stable and won’t suddenly spike again. That fear and uncertainty is understandable and will take time to dissipate. Even after months of stable prices, inflation is still the number one economic concern for most Americans.

But what about that big disconnect for people who actually are doing fine or even consider themselves financially well-off, but who wrongly believe that the economy is terrible for everyone else? A few things may be at work here. 

There is the mainstream media, whose coverage of the economy has been far more gloom and doom than objectively warranted. I was genuinely surprised and delighted to see two very positive economic outlook pieces out in the past two days in the New York Times and the Washington Post, signaling that even some of the skeptics there have relented. Nonetheless, the Times still had to get a dig in about the situation being good while “defying fears of a decline.” Gee, I wonder who spread those fears?

There is also the effect of social media and misinformation silos. This is the first economic shock to hit since the rise of social media, and posts that lament things like high prices and folks having to work double shifts have established a social media narrative that is hard to shake, especially among young people. Many of them incorrectly believe we are in a depression, when this is objectively untrue. We aren’t even in a recession. In fact, we are in a time of unprecedented growth and low unemployment. But if you see enough other people saying they are out of work, underpaid, and dissatisfied, that becomes your truth—even if the most are employed, wages are rising fastest for lower income workers, and job satisfaction is at a record high.

Then there is deliberate disinformation, of the kind we see on the Fox Network and Newsmax, or the false claims of $7 and $8 a gallon gas prices that Trump has amplified recently during his campaign speeches. Given the effective propaganda from the right, it should come as no surprise that Republicans rate the economy significantly more negatively than Democrats or Independents. In fact, Republicans rate the economy on average as worse than it was during the Great Recession of 2008-09. Again, this is objectively untrue, but they hear enough of a negative drumbeat from right-wing media that they believe it to be true, just as they believe crime rates to be skyrocketing when in fact they are down.

Such misinformation and disinformation can and must be countered. Those influenced by TikTok and the Fox Network may believe and claim the economy is as bad as it’s ever been, but this does not and should not make it so. We need to push back, as we did with Covid and vaccine untruths, with actual facts and figures, even at the risk of angering or being accused of insensitivity by those who are still struggling.

Time will help. What matters in the short term is how much money average American families actually have after expenses. Importantly, that number is unlikely to shrink in the coming year, as prices stabilize and real wages catch up. What matters in the long term is how well-off families feel as they look toward their futures, including whether they can afford a car or a home, what their existing house could sell for, and how much their retirement savings are worth. All of these are likely to see improvements next year as markets rise and interest rates fall.

Even Fox is having trouble lately denying that the economic news is good. And right-wing influencers on social media, who are trying to push back against the barrage of good economic news and still claim that Biden has ruined Christmas, are finding themselves fact-checked and mocked for their anti-factual complaints. In one very encouraging sign, the Consumer Confidence Index rose 10 percent in the latest reading to 110.7, beating expectations and marking the highest point in five months. Strong retail sales for the holiday season capped off the good news.

Americans regularly list the economy as their top issue in any election. This was of course true in November 2022, when inflation was near its peak. But that didn’t prevent Democrats from overperforming in the midterms and even increasing their majority in the Senate. That alone is a strong signal that while money does matter, other things matter, too, such as protecting abortion rights and pushing back against political extremism and election denialism.

This gives me optimism heading into 2024. After all, if the poor economic outlook in 2022 wasn’t enough to power a Red Wave, the far brighter and, dare we say it, rosy outlook for the coming year means the economy will be even less of a drag on voter enthusiasm. In fact, if the numbers continue the way they are going, the economy could wind up being a big plus for Biden as he seeks election to a second term.

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