WASHINGTON (AP) — Vice President Kamala Harris faces a key question as she moves closer to the Democratic presidential nomination: Can she parlay Biden and Harris’ economic record into a political advantage that President Joe Biden has failed to do?
In some ways, their job seems straightforward: The administration oversaw a mighty recovery from the pandemic-induced recession, which saw the U.S. unemployment rate fall to a half-century low of 3.4 percent in early 2023—far below the painful 6.4 percent it reached when Biden and Harris took office in 2021. The rate remained below 4 percent for more than two years, the longest such period since the 1960s.
Robust economic growth, fueled by the government’s $1.9 trillion stimulus package, boosted demand for labor and forced employers to raise wages. Wages rose particularly quickly for low-income earners, reducing income inequality.
But parts shortages soon emerged due to clogged supply chains as demand for furniture, cars and other goods soared, boosted by government stimulus measures. Russia’s invasion of Ukraine caused gas and food prices to escalate. In June 2022, inflation reached its highest level in four decades.
The price boost was so severe that it wiped out most of the wage growth that workers had enjoyed. And it made Americans sour on the economy. Consumer sentiment collapsed in delayed 2021 and has barely recovered, even as inflation has fallen to 3% from 9.1% in 2022.
A wide gap has opened up between the public’s gloomy assessment of the economy and the generally positive data on jobs, falling inflation and economic growth. Chris Jackson, head of opinion polls at Ipsos Public Affairs, said he blamed this on the cumulative rise in average prices over the past three years – around 20 percent, only partially offset by higher wages – and a general unease about the direction the country is heading.
“People are doing OK, by and large,” Jackson said. “They have their jobs, they’re getting paid, they’ve gotten raises – all of those things. And yet they feel like their money isn’t going that far. They feel like the country in general isn’t moving in a good direction.”
Former President Donald Trump has campaigned strenuous on the higher cost of living, mentioning inflation 14 times in his speech at the Republican National Convention last week. His running mate, Senator JD Vance of Ohio, has attacked Biden over rising housing costs, which have dampened the hopes of many potential homebuyers.
In her speech in Indianapolis this week, Harris emphasized her support for “affordable health care” and “affordable child care.” She also accused Trump of attempting to repeal the Biden administration’s price cap on insulin, which the White House often cites as an example of its efforts to reduce high drug costs.
Even though inflation – the rate of price increases – has slowed significantly over the past two years, Americans remain unhappy that average prices are much higher than they were a few years ago. Food prices have risen 21 percent since Biden and Harris took office. Average apartment rents have risen about 23 percent to $1,411 per month, according to Apartment List.
And to combat inflation, the Federal Reserve, under Chairman Jerome Powell, raised its benchmark interest rate at the fastest pace in four decades. Borrowing costs soared as a result. The average interest rate on 30-year fixed-rate mortgages has more than doubled, from a low of about 2.7% during the pandemic to about 6.8% last week.
The combined rise in prices and inflation was particularly jarring for many families because it followed a decade of little to no inflation and ultra-low interest rates. America’s households became accustomed to prices barely rising. From 2015 until the pandemic, for example, food prices in the U.S. remained virtually unchanged. When inflation finally struck, it not only strained Americans’ finances but also clouded their economic outlook.
Still, many world leaders view the Fed’s acute rate hike and subsequent decline in inflation as an economic success story. When the Fed began raising interest rates aggressively, making consumer and corporate loans significantly more steep, there was widespread fear that the United States would soon plunge into recession. In August 2022, Powell publicly warned that the Fed’s fight against inflation would “cause some pain for households and businesses.”
Instead, inflation has fallen without a acute rise in unemployment, which remains at a low 4.1 percent. And Fed officials have indicated they are increasingly confident that inflation is falling steadily toward their 2 percent target.
Christopher Waller, an influential member of the Fed’s board, acknowledged this progress in a speech last week.
“We’ve never seen this in the form of a drastic tightening of monetary policy,” Waller said, referring to the Fed’s rate hikes. “The economy has somehow held up. And inflation has come down sharply. That’s been an amazing recovery after what happened in 2021 and 2022.”
But many Americans do not share the enthusiasm as they struggle with still-high costs. New car prices rose 24 percent in the three years following the pandemic, to an average of $48,000. They have largely stabilized over the past year, according to government data. But on Thursday, General Motors said customers paid an average of nearly $50,000 for one of its modern cars in the April-June quarter.
Perhaps most painfully, housing affordability has worsened. Both prices and mortgage rates are much higher than they were three years ago. The monthly payment for a newly purchased median-priced home has risen by nearly a third in that time, to more than $3,000, according to Harvard University’s Joint Center for Housing Studies. In nearly half of all metropolitan areas, prospective homebuyers must earn at least $100,000 to afford a median-priced home, the center says.
Abigail Wozniak, director of the Opportunity and Growth Institute at the Federal Reserve Bank of Minneapolis, said the burden of such huge purchases will become harder to manage if overall prices soar.
“It’s difficult to change your car and housing consumption quickly and in small steps,” Wozniak said. “You’re forced to think about this big budget decision: Should I give up the car and switch to public transportation? That’s a huge change. And adjustments are painful.”
Then there’s food. The price of a pound of ground beef has risen $1.05 since Biden took office, to a national average of $5.36 per pound, according to government data. Although egg prices are well below the peak they hit during a bird flu epidemic in delayed 2022, at $2.72 per dozen they are still 85 percent more steep than they were three years ago. A pound of chicken has risen 25 percent since January 2021, to $2.01.
But Biden administration economists have calculated that average wages have risen enough to offset the higher costs. In June, the average hourly wage was 23 percent higher than it was four years earlier — more than the 21 percent boost in average prices. As a result, White House economists calculated, a typical worker now needs about 3.6 hours of work to buy a week’s worth of groceries, about the same as before the pandemic.
Economists say that’s how it’s supposed to work: After a bout of inflation, prices don’t fall back to their previous levels. Such sustained price declines usually only occur during recessions. In a vigorous economy, wages eventually rise enough for consumers to afford the higher costs.
By some measures, lower-income workers have fared particularly well, reflecting the difficulties employers have faced in filling many in-person jobs after the pandemic. Wages for restaurant and hotel workers rose nearly 15% in spring 2022 compared with a year earlier—far faster than the rate of inflation.
However, total household income has not increased as quickly as hourly wages. This may happen if fewer people work in a household or if their working hours are reduced.
Economists at Motio Research have calculated that inflation-adjusted median household income has increased by just 1.6%, to $79,000, since Biden took office in January 2021. (The median represents a midpoint and filters out extremely high or low numbers that can distort the average.)
“So when at least half the population sees their income stagnate for four years, you can understand why inflation is seen as a huge problem here,” says Matias Scaglione, co-founder of Motio.
