U.S. President Joe Biden delivers remarks on the U.S. economy and his administration's efforts to improve the American economy during his visit to Flex LTD, a factory that makes solar energy microinverters, on July 6, 2023 in West Columbia, South Carolina, U.S Revitalize manufacturing.
Jonathan Ernst | Reuters
To the untrained eye, Joe Biden is leaving the presidency with what appears to be a top-notch economic record: Hiring is solid, gross domestic product is rising, and consumer spending is still at a high pace.
There is only one problem, and it is one that will forever tarnish Biden's legacy, that bankrupted him and his party politically, and for which he will always be remembered.
Inflation and its burdensome toll on households, particularly those at the lower end of the income spectrum, have overshadowed everything else good that happened under Biden's watch. Even though the pace of inflation has slowed significantly since its peak in mid-2022, consumers, investors and entrepreneurs continue to cite it as their most pressing problem.
“Biden inherited an economy that was devastated by the pandemic, and he leaves behind an economy that is running at full speed,” said Mark Zandi, chief economist at Moody’s Analytics. “Yet there are flaws in the minds of many Americans… They feel betrayed.”
Even with the unemployment rate having fallen dramatically since he took office, even with growth at 3%, and even with an economy that top officials say is the envy of the rest of the world, Biden's economic story is one that has been an unfortunate one End as Donald Trump prepares to return to the White House on Monday.
“To me, that is the enduring legacy and differentiator between the two administrations,” said Joseph LaVorgna, chief U.S. economist at SMBC Nikko Securities and lead economist in the first Trump administration. “Inflation was two and a half times higher under President Biden than under President Trump. “That was essentially the main catalyst for the return to Trump’s policies, which were based on very good growth and low and stable inflation.”
According to a CNN poll, Biden leaves office with just 36% approval overall, the lowest level of his presidency, with just 33% approving of the way he has handled the economy.
Looking at different data points helps understand the history of inflation and how it has affected perceptions of the economy as a whole.
Biden in numbers
In fact, the cumulative inflation rate during Trump's first term from 2017 to 2021, as measured by the Consumer Price Index, was less than 8%. For Biden it was 21%. The fact that the economy grew by 11% in real terms under Biden – compared to 8.6% under Trump – does not seem to matter. Inflation peaked above 9% in June 2022 and has exceeded the Federal Reserve's target of 2% every month since March 2021.
As prices for various goods and services rose and remained high, wages struggled to keep pace. Even with an increase in 2024, the 19% increase in average hourly wages under Biden is still below the rate of inflation.
As a result, the mismatch between wages and prices has pushed consumer confidence 6% lower under Biden than when he took office, according to the widely followed University of Michigan sentiment survey. That's saying something, considering that when Biden took office in January 2021, the economy was still in the shadow of Covid and many people chose to spend the late 2020 holidays away from friends and family due to the spread of the Omicron variant.
Why do consumers feel so depressed?
Because even though the price of eggs has risen 180% in four years, household net worth has increased and consumers continue to spend money. According to the Fed, retail sales rose more than 20% and household net worth now stands at $169 trillion, up 28% from the end of 2020.
The biggest contribution to the household balance came from a meteoric, albeit volatile, rise in stocks and real estate values.
Since Biden came to power, technology companies, fueled by advances in artificial intelligence, have continued to push stock prices higher. The Dow Jones Industrial Average alone is up more than 40%, and the Nasdaq Composite, which is more heavily weighted toward Silicon Valley high-flyers, is up nearly 50%.
According to the Fed, home prices rose 24% over the same period, while the value of household-level real estate rose 42%.
Nevertheless, the dream of owning your own home has become increasingly unlikely as prices have risen and loan interest rates have also fallen. The typical 30-year mortgage rate is now over 7%, more than double what it was in January 2021.
The rise in wealth, particularly in the stock market, has also created distorted benefits that primarily benefit those with the means to purchase stocks.
The richest 1%'s share of total net worth is 30.8%, the highest level in about three years, according to the Fed. Likewise, 1 percent residents control nearly 50% of all stock market-related assets, a number that has also increased gradually in recent years. The bottom 50% of the workforce owns just 1% of stock market assets, a number that has actually doubled during the Biden years.
All the different metrics seem to be related to the question of inflation and how we got here.
A question of history
Economists and policymakers are diagnosing the problem similarly, although there are some differences: Imbalances between supply and demand at the start of the pandemic drove up the cost of goods over services by disrupting supply chains. Trillions in fiscal and monetary stimulus aimed at containing the damage caused by Covid exacerbated the problem by using too much money for too few goods. Finally, a monetary policy response in the form of initially low and then high interest rates, which even Fed officials have admitted was sluggish, helped to further boost prices.
Biden threw a volley of fiscal ammunition at the post-Covid economy, including the controversial $1.9 trillion American Rescue Plan and the Inflation Reduction Act of 2022, which critics say has increased the burden of inflation, although supporters say that the measures have led to critical spending on infrastructure and climate protection will bring benefits for many years to come.
“We had very good growth and a reasonably strong job market,” LaVorgna said. “The question is, at what cost?”
The labor market was indeed strong, creating millions of jobs as employers sought to offset their own supply-demand mismatch, which at one point outnumbered job openings by two to one. In the Biden economy, the unemployment rate has fallen by more than two percentage points and looks stable recently despite a slight increase in mid-2024.
But here too it all seems to be due to inflation.
The price to which LaVorgna alluded was a bloated federal budget, with a deficit reaching $1.8 trillion in 2024 and well above that deficit in fiscal year 2025 to finance $36.2 trillion in debt . Taxpayers paid more than $1 trillion in interest costs on the debt alone last year and are expected to pay about $1.2 trillion this year, a sum that dwarfs all other spending except Social Security, defense and health care provides.
The 6% deficit-to-GDP ratio that the government is targeting is unprecedented in an expansionary economy. Before the 2008 financial crisis, the U.S. had not experienced such a massive shortfall in total output since 1945, when the country escaped the World War II economy.
The bill will then be borne by future generations who will be burdened with today's debts and deficits.
“This is a problem, a big problem,” Zandi said.
In fact, much of the job growth is in government and health care, both sectors tied to expansionary fiscal policies, as well as leisure and hospitality, a sector that took until May 2024 to recover the losses lost during Covid-19 regain jobs.
Despite the numerous challenges, most officials say the U.S. economy is healthy.
Zandi said his global clients often ask him what the “secret sauce” is that has kept the U.S. so vibrant compared to its global counterparts. Fed Chairman Jerome Powell, who has often described the U.S. fiscal stance as “unsustainable,” said he would be asked similar questions.
“These international meetings that I attend have been about how well the United States is doing,” Powell said at a press conference in December. “If you look around the world, there's just a lot of slow growth and ongoing inflation struggles. So I feel very good about the state and performance of the economy and we want to keep it that way.”
However, uncertainty over where the Fed moves will be a shadow over the Trump economy.
During its fight against inflation, the central bank raised its key interest rate by 5.25 percentage points, but has since cut it by a full point as officials become increasingly comfortable with the direction of inflation. But there is significant uncertainty about what happens next, with markets cautiously pricing in further cuts of a quarter or half a percentage point for the rest of 2025.
As Biden leaves the White House, he leaves behind countless questions about what could have been done to make things better — and how things could easily have been worse.
“Economists looking at this 20 years from now will see this as a pretty amazing achievement,” Zandi said. “The story here is not over yet. But I have a feeling that history will judge this time as one that will be followed by future crises.”
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