Job growth is strong under Biden, but challenges remain for a robust economic recovery

President Joe Biden has benefited in recent months from strong growth in economic output and jobs, but high inflation and interest rates still weigh on his approval ratings and threaten his election chances.

What’s going right for Biden

Some major economic statistics indicate that the health of the economy is strong. The jobs report for March, for instance, showed that the labor market is still expanding rapidly and unemployment is very low, by historical standards, at 3.8%. Gross domestic product grew at a robust 3.4% annualized rate in the fourth quarter of 2023, adjusted for inflation, and is expected to come in at a strong 2.5% in the first quarter of this year.

Yet, despite such signs of economic health, the public is unhappy with Biden’s economic stewardship. A recent CNBC survey found that Biden’s economic approval rating is only 37%, although that is up from 33% in December.

What’s going wrong for Biden

The glaring explanation for economic dissatisfaction is the high inflation of the past few years.

Overall prices are up 18% since Biden took office in January 2021. For instance, boneless chicken breasts cost 26% more now than they did then, gas is nearly 48% more expensive, clothing costs 9% more, and ground beef has grown in price by more than 41% since Biden entered office.

The less obvious economic problem is that interest rates are high, putting major consumer purchases, such as houses, cars, and appliances, out of reach for many families.

“People don’t feel GDP numbers, they don’t feel jobs numbers, especially when they already have one or can find one, but they do feel inflation numbers — they see it in the grocery prices, they see it in their interest rates on their mortgages,” Casey Burgat, legislative affairs program director at George Washington University, told the Washington Examiner.

The average rate on a 30-year fixed-rate mortgage, for example, has risen from 2.77% when Biden was inaugurated to 6.82% in the most recent reading provided by Freddie Mac. As a result, the typical payment on a new mortgage rose to $2,721 in March, according to the real estate company Redfin, double what it was as recently as mid-2020.

Similarly, rising interest rates mean that buying a car is a much pricier proposition. The average cost of owning and operating a new vehicle rose to $12,182 for 2023, according to AAA, up 27% from 2020, thanks largely to higher rates on auto loans.

The higher costs of financing consumer goods appear to be a top reason that consumers are unhappy. Sentiment, in fact, is well below what would be expected given the mix of GDP growth, unemployment, and inflation. After all, while inflation has been high, median-inflation-adjusted earnings were above the pre-pandemic level at the end of 2023, according to Bureau of Labor Statistics data.

The inflation data, though, does not take into account higher interest rates. A recently circulated working paper authored by Harvard economist and former Treasury Secretary Larry Summers concluded that the higher borrowing costs explain much of the low readings in consumer sentiment that cannot be explained by the unemployment and inflation numbers.

John McLaughlin, a longtime pollster for the Trump campaign and for the Job Creators Network Foundation, said he thinks people will end up voting against Biden because of their anger with the higher inflation and higher interest rates.

“It’s the deciding issue,” he told the Washington Examiner.

What Biden needs

For Biden, then, a key consideration for the rest of the year is not just whether the economy continues to see strong output and job growth coupled with falling inflation. It is also whether interest rates will moderate. That, in turn, will largely depend on what the Federal Reserve does.

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Fed officials have indicated that they expect to reduce their short-term interest rate target this year as inflation comes down. Yet recent hot inflation readings have led investors to believe that the rate cuts will be delayed. Following Friday’s surprisingly strong jobs report, bond market prices indicated that no rate cuts were expected until June at the earliest, according to the CME Group’s FedWatch tool.

In other words, if Biden wants to see economic sentiment rise and boost his approval ratings, he should hope the inflation rate comes down further, coupled with signs that the labor market is not overheating, in the coming months. That, in turn, would lead the Fed to move faster toward lowering interest rates.