People are buying less stuff as inflation rages — and it's a terrible sign for Democrats' chances in the midterms

President Joe Biden
Real disposable income is dropping for Americans. That means negative attitudes toward the Democrat party heading into midterm elections.
  • Real disposable income — what people can spend after taxes and inflation — has steeply declined.
  • The measure is the "strongest predictor" of midterm results, according to Goldman Sachs.
  • That's a bad sign for Democrats, who already faced an uphill battle to keep control of Congress.

The first hints of an inflation cooldown have emerged, but it's likely arriving too late to save Democrats' election hopes.

Data published Thursday shows surging prices continuing to eat away at Americans' finances. Real disposable income per capita, which tracks what people can spend after adjusting for inflation and taxes, slid through May to $45,490, according to the Bureau of Economic Analysis. The drop extends the steep decline that started early last year and brings the measure further below the 2021 peak of $57,597.

The drop reflects the grim reality facing most households and, by extension, the Democratic party. The midterms were already expected to be an uphill battle for the party, as holding control of the White House and the legislature tends to mean at least one chamber of Congress will flip in the next set of elections. Yet the new economic data suggests the party's losses will be even larger than previously anticipated.

The fiscal stimulus deployed by the government earlier in the pandemic has largely dried up. At the same time, inflation is running at the fastest pace in 41 years, forcing Americans to pay much more just to maintain their living standards.

Other data suggests the decline in disposable income is the nail in the coffin for the reopening spending spree. Retail sales unexpectedly dipped in May, snapping the rally seen throughout 2022. After vaccine rollouts and the reversal of lockdown measures sparked extraordinarily strong spending, shoppers seem to have finally had enough of soaring prices. They're upset, too; consumer sentiment hasn't been this bad since the University of Michigan started tracking it in the late 1970s.

Real disposable income growth has long been "the strongest predictor of midterm election results," Goldman Sachs analysts led by Jan Hatzius said in a note published Monday, adding the measure even trumps gas prices and overall inflation. Disposable income has fallen more over the past year than in any midterm election year since data collection began in 1959, dragged lower by dwindling stimulus aid and sky-high inflation.

Even if prices start to drop and the economy improves, it's probably too late to buoy Democrats' election hopes, the analysts said.

"Voters' views regarding the economy are largely set," the team added. "Policies to incrementally lower inflation ahead of the election, for example, might not have much of an effect on the outcome."

To be sure, the economic backdrop isn't all bad for Democrats' chances. Payroll growth is the second most relevant economic variable for midterm election outcomes, the analysts said. That bodes well for President Joe Biden's party. Job growth continued to surpass expectations through May, with the US adding 390,000 nonfarm payrolls and the unemployment rate holding at a historically low 3.6%. The US is on track to return to its pre-pandemic job count by the end of July, making the labor market's recovery one of the fastest in history.

Still, most economic indicators signal the GOP will take control of the House, Goldman said. Other measures like gas prices, food inflation, and headline price growth have a long ways to go before returning to sustainable levels. The past year of skyrocketing prices, dwindling optimism, and crumbling finances are set to take their toll on Democrats' influence.

Read the original article on Business Insider


Contributer : Business Insider https://ift.tt/qa6OKJD
People are buying less stuff as inflation rages — and it's a terrible sign for Democrats' chances in the midterms People are buying less stuff as inflation rages — and it's a terrible sign for Democrats' chances in the midterms Reviewed by mimisabreena on Saturday, July 02, 2022 Rating: 5

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