Is that how the economy feels to millions of American households — “on the right path“? As I predicted yesterday, Joe Biden has decided to stick to the Chip Diller playbook in response to today’s second consecutive negative GDP report. Biden insists that we need to stay his course regardless of the outcomes:
Coming off of last year’s historic economic growth – and regaining all the private sector jobs lost during the pandemic crisis – it’s no surprise that the economy is slowing down as the Federal Reserve acts to bring down inflation. But even as we face historic global challenges, we are on the right path and we will come through this transition stronger and more secure. Our job market remains historically strong, with unemployment at 3.6% and more than 1 million jobs created in the second quarter alone. Consumer spending is continuing to grow. Earlier this week, I met with the Chairman of SK Group from Korea, just one of the companies investing more than $200 billion in American manufacturing since I took office, powering a historic recovery in American manufacturing.
My economic plan is focused on bringing inflation down, without giving up all the economic gains we have made. Congress has an historic chance to do that by passing the CHIPS and Science Act and Inflation Reduction Act without delay.
One has to wonder whether this response got written yesterday. Consumer spending is not “continuing to grow,” for instance; PCEs barely made it to positive territory at an annualized 1% growth rate, but spending in all goods categories contracted. One company may be investing in the US (from South Korea?), but domestic business investment fell in Q2 at an annualized 13.5% rate.
Another indicator of the “path” is real disposable income, and it’s clearly going in the wrong direction. That’s due to inflation, which not only is eroding buying power but also hitting the savings rate in Q2. I mentioned this in my earlier analysis but it bears repeating here:
Disposable personal income increased $291.4 billion, or 6.6 percent, in the second quarter, in contrast to a decrease of $58.8 billion, or 1.3 percent, in the first quarter. Real disposable personal income decreased 0.5 percent, compared with a decrease of 7.8 percent. Personal saving was $968.4 billion in the second quarter, compared with $1.02 trillion in the first quarter. The personal saving rate—personal saving as a percentage of disposable personal income—was 5.2 percent in the second quarter, compared with 5.6 percent in the first quarter.
The “real” indicates inflation adjustment. Nominal wages may be increasing, but inflation is wiping those increases out and even more buying power on top of that.
How many Americans agree with Biden that we’re “on the right path”? Even before today Biden had lost that argument, according to RCP:
Biden’s Chip Diller act has already worn itself out long before today. Clinging to failure looks more like desperation or surrender than courage or strategy, and his refusal to recognize the pain felt at American kitchen tables makes him look more like a Beltway clown than the working-class hero Biden pretends to be.
Update: Washington Post economics analyst Heather Long sees a much different reality than the White House, too:
The most worrying part of the GDP report today is the slowdown in consumer & biz spending.
-Big drop in consumer spending on goods that was barely offset by a modest rise in services spending.
— Heather Long (@byHeatherLong) July 28, 2022
Biden tried claiming the exact opposite. It’s what you’d expect from demagogues and dilettantes. Biden’s both.