Why Democrats are set to lose

Since peaking at $5 a gallon in June, gas prices have gone President Biden’s way. The steep price drop since then, to about $3.80 a gallon, has offset what looked like a catastrophic liability for Biden and his fellow Democrats.

Still, it looks like Biden’s party will lose control of Congress in the Nov. 8 midterm elections anyway. The Supreme Court’s annulment of the Roe v. Wade abortion protections in June were supposed to be a game changer for Democrats, fueling the rise of angry voters eager for a Democratic Congress to counterbalance the new conservative court. In recent weeks, however, abortion has receded as a vote issue, displaced by that old stalwart, the economy, stupid.

New analysis by Moody’s Analytics isolates real disposable income and inflation-adjusted home values ​​as the two economic indicators that best predict the fate of the incumbent party in midterm elections. Home values ​​should be a democratic advantage. Prices are up 13% year-on-year, while inflation is 8.2%, for a real, inflation-adjusted gain of around 5%. This will usually be good news for incumbents.

[Are you voting Republican because of the economy? Tell us why.]

But COVID-related contortions are undermining the value of the hot housing market for incumbent Democrats. As pandemic demand for real estate soared in 2020 and 2021, rising prices became a windfall for sellers and owners. However, buyers faced sticker shock, with many prices. Now they are getting a whiplash as the Fed raises interest rates to combat inflation. Rising rates and still high prices have caused an affordability crisis, with the Oxford Economics housing affordability index at its weakest level since 2007, which was the height of the last housing bubble. A flexible housing market unsettles rather than reassures voters.

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As for real incomes, they are near record lows by some measures. Real income is 4.5% lower than a year ago, on a seasonally adjusted basis, according to government data. The average quarterly change going back to 1970 is a gain of 3.1%. So this is a particular pain point for consumers at the moment. This chart tells the story:

To understand what’s going on with incomes, ignore the unprecedented ups and downs that occurred in 2020 and 2021 as workers streamed out of the labor force and then returned. Instead, notice where real incomes have leveled off as the labor market has returned to normal. Real incomes have declined by more than at any time during the past 60 years, including the period in the 1970s and early 1980s when inflation was even higher than it is now. Wages are likely to catch up with inflation over time, but right now the typical worker is falling badly behind.

Here’s another way to see the problem for Democrats. For the Yahoo Finance Bidenomics Report Card, we track real income and five other economic metrics under Biden, compared to past presidents going back to Jimmy Carter at the same point in their presidency in the 1970s. Biden gets high marks for job creation, but he earns the lowest mark among eight presidents for average hourly earnings. Again, this is because inflation is higher than nominal wage growth, which erodes the typical worker’s purchasing power.

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High gas prices were never America’s biggest problem

Biden has been obsessively focused on gasoline prices, recently announcing, for example, that the government will continue to release oil from the strategic reserve through December to help lower prices. Biden’s approval rating fell as gas prices rose to new highs earlier this year, then improved as gas prices fell.

But voters have economic concerns far beyond gas prices, as they should: Housing and food costs make up a much larger portion of the typical family budget than gasoline. Food prices rose by 13% year-on-year. Housing costs rose by 8%. Nominal earnings are only 5% higher. Paychecks don’t keep up with price increases.

While voters have shown less concern about gas prices in recent weeks, they remain nervous about the overall economy. “Americans’ view of the nation’s economy remains overwhelmingly negative,” Pew Research reported on Oct. 20, with its latest poll showing that 82% of voters view the economy as poor or fair. Only 17% say the economy is excellent or good. Seventy-three percent say they are very concerned about the price of food, slightly more than the 69% who are very concerned about the cost of gasoline.

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Gallup polls have shown the economy to be the most important voter issue, by far, all year. And there was little change in inflation concerns, even as gas prices fell. In May and June, 18% of voters said inflation was their biggest concern. In September it was 17%, which is hardly an improvement. Falling gas prices have not convinced anyone that overall inflation is falling. Meanwhile, the proportion who say abortion rights are the most important issue is just 4% – down from 8% in July.

There probably isn’t much more that Biden could have done in the past few months to combat food inflation or other price increases that are letting voters down. The president’s tools are limited to begin with, and it is the Federal Reserve’s job to address inflation through monetary policy. Fed rate hikes will probably do the job, eventually. But that will come too late to help Democrats retain power in 2022. By 2024, maybe.

Rick Newman is a senior columnist for Yahoo Finance. Follow him on Twitter @rickjnewman

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