The Biden economy: Waning inflation, record jobs, lingering uncertainty
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[February 07, 2023] By
Howard Schneider and Andrea Shalal
WASHINGTON (Reuters) - Joe Biden speaks to the nation tonight at a time
of record low unemployment, rising wages, and diminishing fears of
recession - facts the U.S. president is likely to trumpet as a sign his
economic plans are working in the wake of the COVID-19 pandemic.
But there are pressing economic issues, most notably the need to lift a
statutory debt limit that, in the extreme, could cause the U.S.
government to stop paying its bills.
And simmering in the background: A still unresolved Federal Reserve
fight to control inflation that may pose the largest outstanding risk to
the Biden economy, and over which the White House has little influence.
Biden will deliver the annual State of the Union address to a joint
session of Congress on Tuesday night, his second such speech as
president and the first since the Republican party narrowly took control
of the House of Representatives after November's mid-term elections.
The overall mood is still mixed, economists and pollsters report, with
Biden's approval ratings hovering at around 40%. Consumers are
"reconciling layoff announcements with record job numbers, inflation
that is rolling over yet prices remain elevated. It is not black and
white," said John Leer, chief economist with Morning Consult.
In his speech, Biden "has to thread a bit of a needle," said Brian
Gardner, Washington strategist for investment firm Stifel. Despite
positive employment and other trends, "people are still anxious and you
cannot be tone deaf to that," after a year in which prices rose at the
fastest pace in 40 years and the Federal Reserve's aggressive rate hikes
put home mortgage and other credit out of reach for some families.
GASOLINE AND INFLATION DROP
On the whole, economic data in recent months has moved in the
president's favor, particularly after inflation spiked to a 40-year high
last summer and government reports showed the U.S. economy could be
heading into a recession.
The consumer price index dipped from a nearly 9% annual rate in June to
under 6.5% as of December.
Gasoline prices that hit $5 a gallon over the summer were below $3.50
this week. Consumer confidence and the household inflation outlook have
improved.
GDP AND JOBS RISE
After a tepid start to 2022, the U.S. economy ultimately grew by more
than 2% for the year after a stronger than expected second half,
prompting firms like Goldman Sachs to lower the perceived risk of a
downturn.
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U.S. President Joe Biden delivers
remarks on the U.S. economy from an auditorium on the White House
campus in Washington, U.S. October 26, 2022. REUTERS/Jonathan Ernst
The progress on inflation, meanwhile, has come so far without any
corresponding hit to job growth or the unemployment rate.
The economy added an average of a half million jobs a month in the
first two years of the Biden presidency, nearly triple the pace seen
before the health crisis - and 4.8 million in 2022 alone. The
571,000 added in January showed unexpected ongoing strength and put
the economy within a few months of potentially returning the
employment level to its pre-Covid trend.
STRONG LABOR MARKET
The gains have been spread across industries and demographic groups.
High profile tech firms may be laying off employees, but other
businesses have picked up the slack thanks to still booming demand
at restaurants and for other services.
The unemployment rates for Black and Hispanic people are near the
lows seen before the pandemic hit the U.S. economy in March of 2020.
What's still to be determined, and what could shape the landscape
Biden and his Democratic Party ultimately face in 2024, is whether
inflation continues to steadily decline, and, if not, what the Fed
chooses to do about it.
Fed officials see the current levels of job and wage growth as
unsustainable. If inflation does not continue to slow they have
pledged to raise interest rates as high as necessary to win that
particular fight - even at the cost of rising unemployment.
Biden's message Tuesday night, however, will be focused on what the
administration sees as the progress that is continuing, and the
sense that the economic impact of the pandemic has waned.
"On average, American households are in a better position than they
were before the pandemic hit," National Economic Council director
Brian Deese said on Monday. "We find ourselves today in an economy
where we have real resilience."
(Reporting by Howard Schneider; Editing by Heather Timmmons & Shri
Navaratnam)
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