My late boss, Senator Daniel Patrick Moynihan, a sage and successful politician, once told me that in politics, “If you don’t get credit, it didn’t happen.” The White House and congressional Democrats need to relearn that lesson. In March 2022, 75 percent of Americans thought the economy was flailing despite more than a year of historic gains in GDP and jobs. Today, the public’s discontent is focused on inflation and incomes, with 68 percent disapproving of the president’s performance on inflation and 50 percent feeling worse off economically than a year earlier. Yet, the reality is that inflation has been falling fast, and people’s incomes after inflation have been rising rapidly.
For example, the latest data from the Bureau of Economic Analysis (BEA) shows that prices for consumer goods and services (technically, the “deflator” for personal consumption spending) increased an average of 0.2 percent per month in February and March of this year. On an annual basis, that comes to 2.6 percent inflation, or less than half the 5.6 percent rate in 2022. The BEA also reports that the inflation-adjusted disposable incomes of Americans per capita jumped 1.8 percent in the first quarter of this year, following two previous quarters of income progress. That is a sharp reversal of the 6.9 percent decline in 2022, driven mainly by that year’s inflation.
Economists know better than to trust one or two months’ worth of economic numbers. Still, other data covering the last four to nine months shows rapid disinflation and healthy income gains across the economy. According to the Bureau of Labor Statistics, household energy bills fell 4.1 percent from December 2022 to April this year, compared to a 6.6 percent increase for the same months in 2021-2022. Similarly, food prices climbed less than 1 percent from December to April, or 2.8 percent on an annual basis, compared to a 10.5 percent jump in 2022.
Gasoline prices rose by less than 1 percent from last December to April, compared to an 11.4 percent increase over the same months in 2021-2022. Prices for all durable goods—appliances, automobiles, computers, home furnishings, and so forth—also rose barely 1 percent from December 2022 to April, or 3.2 percent on an annual basis, versus price hikes of 10.5 percent in 2022. And businesses expect this sharp slowdown in inflation to last: A monthly survey by the Federal Reserve Bank of Atlanta found that from January to May, business expectations for inflation one year out averaged less than 3 percent.
Why are so many Americans so off-base about inflation? Psychologists say people are more sensitive to losses than comparable gains, so perhaps much of the public hasn’t gotten past the significant inflation in 2021 and much of 2022. And why should they, when the mainstream media usually report inflation in ways that encourage a backward-looking view? Plus, it doesn’t help that the White House has been largely silent about its slowdown.
For example, inflation increased by 0.3 percent in February and 0.1 percent in March, which, looking forward, translates into yearly inflation rates of 3.8 percent and 1.4 percent. But that’s not what most people hear about because the annual inflation rates reported by the BEA and media for any month are based on how much prices increased over the year that ended that month. That translates into annual inflation rates of 5.1 percent for February and 4.2 percent for March because both rates incorporate the high inflation back from the spring and summer of 2022.
Democrats’ reticence about recent income gains by Americans is more confounding. Overall personal disposable income, adjusted for inflation, jumped at an 8 percent annual rate in the first quarter of this year, following gains of 3.2 percent and 5 percent in last year’s third and fourth quarters. Much of that growth came from the extraordinary job gains under Biden since every newly hired worker adds to total disposable income. Over the last three quarters of healthy income growth, more than 3 million Americans found employment—nearly 1.3 million in the third quarter of 2022, another 853,000 in the fourth quarter, and 885,000 more in the first quarter of this year.
Even so, the real disposable incomes of Americans on a per capita basis also rose sharply over the past nine months, increasing at annual rates of 1.8 percent in the first quarter of this year on top of gains of 1.1 percent in the fourth quarter of last year and 0.6 percent in the third quarter. That comes to increases in real disposable incomes of 3.6 percent per person on an annual basis over the past nine months. That’s something for Democrats to crow about, given that yearly, inflation-adjusted income gains under Trump averaged 2.5 percent per person in 2017, 2018, and 2019. Setting aside 2020, when trillions of dollars in emergency federal aid artificially drove up the personal income numbers, the last time Americans saw real per capita incomes grow so strongly was in 1998 and 2000, when Bill Clinton was president.
So why is it so hard for Democrats to take credit for good economic news under their watch? Why don’t they say they’re beating inflation and delivering real income progress for most Americans? Perhaps one answer is Trump derangement syndrome, in that they’re so consumed with attacking the MAGA Republicans’ extreme agenda that they gloss over their own achievements. Perhaps, too, the survey data about Americans’ pessimism over the economy has led a president famous for his empathy to stay quiet and stick with an I-feel-your-pain message—even if doing so confirms the public’s pessimism.
Whatever the reason, a failure to make the economic case about incomes and inflation is a dangerous oversight for the President and congressional Democrats. This is especially true if the current fight over the debt ceiling results in a default. In that case, the economy will surely slump, and few voters will remember how ably Democrats handled it before the Kamikaze Republicans crashed it.