President Biden made a big bet on an economic rebound when he took office in January 2021, just as the US economy was ramping up its recovery from the COVID-19 recession.
The combination of a $2 trillion stimulus package passed in March 2021, the Federal Reserve’s refusal to raise interest rates and a swift vaccine rollout helped power the US to two years of stellar job growth and steady consumer spending.
But the high inflation left in its wake — driven by largely benefits factors outside Biden’s control — has damaged some of the bounce back for many American households.
Republicans are counting on high prices and recession fears to help them secure majorities in the House and Senate during the midterm elections Tuesday. Inflation has been front-of-mind for voters and may be a powerful force for the GOP.
Democrats counter that the rapid job growth under their leadership, recent progress down gas prices and other key winnings have left the US in a better spot than any other nation currently struggling under similar circumstances.
Here are the five things you need to know about the US economy before Election Day.
The job market is still strong, but may be losing steam
Help wanted sign is displayed in Deerfield, Ill., Wednesday, Sept. 21, 2022.
No president before Biden has presided over such a strong labor market.
The US has gained more than 10 million jobs since Biden took office in January 2021 and saw the unemployment rate sink as low as 3.5 percent, in line with its pre-pandemic level, as recently as September. While the vast majority of those job gains simply replace jobs lost to the pandemic, the strong headline employment gains are just one aspect of a stellar market for job seekers.
Wages are up 4.7 percent over the past year thanks to demand for workers. With roughly two open jobs for every unemployed American, jobseekers have been able to bounce from firm to firm and get better jobs with higher pay along the way.
The October jobs report showed the US gained 261,000 jobs last month, but with the newest data came some signs of a looming slowdown. Unemployment rose despite the labor force staying the same size, and some key industries affected by higher interest rates backtracked.
“No one should be concerned that the US labor market is about to start sinking. Joblessness is still low and job growth is strong, but today’s report shows it may be springing some leaks,” Nick Bunker, economic research director at Indeed, wrote in a Friday analysis.
Inflation has been hard to quash
Gasoline prices are displayed at a gas station in Sacramento, Calif., Friday, Sept. 30, 2022. (AP Photo/Rich Pedroncelli)
The US economy has avoided the long, grueling recovery from the pandemic-driven recession that has left other nations much worse off. But the US hasn’t been able to avoid the global surge of inflation driven by the whipsawing global economy and efforts across the world to stabilize it.
Consumer prices were up 8.2 percent on the year in September, according to the Labor Department’s consumer price index (CPI), a popular way to measure inflation. While the annual inflation rate is down after peaking at 9.1 percent in June, it still remains near four-decade highs and prices are well north of where they started in January 2021.
Economists blame the global inflationary surge on a wide range of factors.
And while Republicans have blamed US inflation on Biden’s stimulus bill, most economists believe low central bank interest rates, supply chain dysfunctions, pent-up demand during the pandemic and supply shocks driven by the war in Ukraine have played a far greater role.
Economic growth has flatlined
After two quarters of shrinking gross domestic product (GDP) and one quarter of growth — both driven largely by international trade quirks — the US economy is just about as big as it was at the start of the year.
Despite Republican claims to the contrary, the US was not in a recession earlier this year when GDP turned negative, thanks largely to the booming jobs market and steady consumer spending. But the latest look into economic growth showed sharp declines in some business spending and a plateau in domestic consumption.
The economy was destined to slow in 2022 after expanding 5.7 percent in 2021, a rapid rate driven largely by the comeback from the COVID-19 recession. Economists, however, have become increasingly concerned that the US will slip into a recession next year.
Interest rates are getting higher
High inflation has prompted the Federal Reserve into a series of jumbo interest rate hikes, the effects of which could tip the US into a recession. While the bank is likely to slow the pace of future rate hikes, Fed Chairman Jerome Powell made clear that he and his colleagues are not thinking about stopping them yet.
“The pace of interest rate hikes will slow, but not stop. The Fed is committed to derailing inflation even though officials believe that will require a rise in unemployment,” Diane Swonk, chief economist at KPMG, said in a Wednesday analysis.
The Fed is expected to hike its baseline interest rate range, currently set at 3.75 to 4 percent, by another 1.25 percentage points before stopping at some time next year. The bank will also keep rates high until they see either inflation coming down or the economy fading into a recession.
“They would like to avoid causing a larger and more prolonged rise in unemployment, if possible. They don’t want to accidentally trigger a seizure in credit markets. The jury is still out on how well they can calibrate rate hikes to achieve those goals,” Swonk wrote.
The housing market downturn is far from the bottom
A home in Mount Lebanon, Pa., under contract, Oct. 17, 2022. (AP Photo/Gene J. Puskar)
The Fed shattered more than a decade of steady home price growth and post-pandemic boom in housing sales as it began hiking interest rates in March.
The Fed’s rapid rate hikes have pushed the average rate on a 30-year fixed-rate mortgage above 7 percent for the first time since before the housing market collapse in the early 2000s.
Housing experts are confident the US will not experience another foreclosure crisis akin to 2008, let alone the financial panic it caused. But economists and analysts expect housing prices to fall and housing sales to fall even deeper in 2023 as mortgage rates continue to rise.
“Mortgage rates may take longer to come down than many have expected, which means housing trends could continue to increase as the economy adjusts to higher rates,” said Redfin deputy chief economist Taylor Marr in an analysis.