The second half of President Joe Biden’s term, during which he will either seek reelection or see another Democrat try to succeed him, will hinge on whether the economy gets better or worse.
Which direction the economy will go in 2023 will go a long way toward determining how the public views Biden’s stewardship heading into yet another election year.
GOVERNING VS. GRIEVANCE: THE GROWING REPUBLICAN DILEMMA
Democrats more or less survived inflation running at a 41-year high, holding on to the Senate and minimizing their House losses in the midterm elections. Now as the Federal Reserve tightens, inflation is finally showing signs of abating.
Biden also avoided a sharp economic downturn before the elections despite two consecutive quarters of negative economic growth. The White House maintained the labor market was too strong for a recession, and the National Bureau of Economic Research never judged the economy to be in one. The Commerce Department actually revised third-quarter GDP growth upward to an annual rate of 3.2%.
“Prices are still too high. We have a lot more work to do, but things are getting better,” Biden said before Christmas. “What is clear is my economic plan is working, and we’re just getting started.” He repeated his hope for a “soft landing” or, as he prefers to put it, “making progress in tackling inflation, even as we make the transition to more steady, stable economic growth.”
Nevertheless, many forecasters believe there is a high probability of a recession in the new year. More than two-thirds of economists at nearly two dozen major financial institutions surveyed by the Wall Street Journal predicted one. “We expect one-third of the world economy to be in recession,” International Monetary Fund chief Kristalina Georgieva told CBS.
Even some experts who think the United States will avoid a recession believe economic growth will practically grind to a halt to the point where, for many consumers and investors, it will make little difference. “Under almost any scenario, the economy is set to have a difficult 2023,” Mark Zandi, the chief economist at Moody’s Analytics, wrote despite acknowledging “inflation is quickly moderating and the economy’s fundamentals are sound.”
Nor is all good economic news unqualifiedly so. When GDP growth and unemployment looked solid at the end of 2022, the stock market actually dipped. Many investors took it as a signal that the Federal Reserve hadn’t done enough to curb inflation and that more interest rate hikes were likely on the horizon.
All this could be a challenge for Biden, who is already receiving low marks on the economy from voters. A recession could continue to color public attitudes about the country’s health long after it is technically over, as the 1990-91 recession did during the 1992 presidential election.
Biden’s job approval rating on the economy stands at 39.3% in the RealClearPolitics polling average, with 56.7% disapproving. On inflation specifically, those numbers are 36% approve to 61.8% disapprove. In both cases, those are worse than his overall approval ratings, which continue to be underwater by more than 8 percentage points.
For Biden, the economy has been a weak spot, even with 3% growth and unemployment at 3.7%. The pandemic and its accompanying business closures were the only things that interrupted a period of low joblessness under both Biden and former President Donald Trump.
If a recession came along and took away those positive economic statistics, Biden’s handling of the economy could become even less popular. That could be extremely difficult for him after dodging the recessionary bullet ahead of the midterm elections.
Biden also saw other topics, such as abortion, eating into inflation and the economy as election-defining events, to the Democrats’ benefit. That too will become more challenging in a full-blown recession and its aftermath. And Democrats did lose enough seats in Congress to make it harder for Biden to have the same pull over fiscal policy as he did during his first two years in office.
When asked about the economy, Biden emphasizes several points: that the economic positives are directly related to his policies, especially the $1.9 trillion American Rescue Plan that detractors say worsened inflation; that he is going to try to keep the economy growing as the Fed tames inflation; that a recession is unlikely and will be short-lived if one does occur; and that the Republicans’ policies will make the economy worse.
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Biden told 60 Minutes last year that he was going “to continue to put people in a position to be able to make a decent living and grow and grow and increase their capacity to grow.”
He has a lot riding on that being true.