The NPR Politics Podcast - Americans Say The Economy's Bad, But Spend Like It's Good

Episode Date: May 13, 2024

What does that distinction mean for Democrats' political fortunes come November? Will the 2024 look more like the 2022 midterm elections, where voters backed Democrats despite a struggling economy? Or is it 1980, when inflation and an unpopular Democratic president led to a surge in Republican power?This episode: White House correspondent Asma Khalid, chief economics correspondent Scott Horsley, and national political correspondent Mara Liasson.This podcast was produced by Jeongyoon Han, Casey Morell and Kelli Wessinger. Our editor is Eric McDaniel. Our executive producer is Muthoni Muturi. Listen to every episode of the NPR Politics Podcast sponsor-free, unlock access to bonus episodes with more from the NPR Politics team, and support public media when you sign up for The NPR Politics Podcast+ at plus.npr.org/politics.Learn more about sponsor message choices: podcastchoices.com/adchoicesNPR Privacy Policy

Support for this podcast and the following message come from Autograph Collection Hotels, with over 300 independent hotels around the world, each exactly like nothing else. Autograph Collection is part of the Marriott Bonvoy portfolio of hotel brands. Find the unforgettable at AutographCollection.com. Hi, this is Andrew in Westfield, Indiana, and I've been out bushwhacking, sorry, mowing my lawn, on this beautiful Sunday afternoon. I know what that's like. This podcast was recorded at 1236 p.m. Eastern Time on Monday, May 13th of 2024.

Things may have changed by the time you hear it, but I'll still be mowing my way through my NPR Politics podcast playlist. All right. Here's the show. He should just let it be a meadow. Hey there, it's the NPR Politics Podcast. I'm Asma Khalid. I cover the White House. And I'm Mara Liason, national political correspondent. And today on the show, Joe Biden's economy, how Americans are spending money in this economy, and how they say they are feeling about this economy. To help us make sense of it all, we are joined today by a friend of the show, NPR's chief economics correspondent, Scott Horsley. And hey there, Scott, it's always good to have you. Good to be here. My lawn is my flag. So Scott, I want to begin with a breakdown

of a few key indicators we have of the current state of the economy. Can you give us a snapshot of what the economic picture looks like at this moment? Sure. Well, the job market remains really strong. U.S. employers added 175,000 jobs in April. That was slower than the pace of the first three months of the year, but still very good. The unemployment rate's been under 4% for better than two years in a row now. Inflation is still elevated. It was 3.5% in March, the annual inflation rate was. We'll get the April number a little bit later this week, and fingers crossed, it'll be a little bit cooler. But inflation has stayed hotter than we would like in the early months this year. Wages are still going up faster than prices. Wages were up 3.9% in April, so that's probably going to be enough to improve workers' real buying power.

But the consumer sentiment is not doing too well. Just last week, we got the latest consumer sentiment snapshot from the University of Michigan, and it had fallen to a six-month low. So people are not feeling really great about the economy right now. Can you tell us a little bit more about what that actually looks at, the consumer sentiment? What does it mean that it is at this six-month low? Well, I think the Michigan data tends to respond a lot to what's happening at the gas pump. It also tends to respond to some extent to what's happening in the stock market.

And it also just responds to people's expectations of which way the economy is going. So, for example, in December and January, when gas prices were low and the stock market was hitting record highs, we actually saw a big improvement in the consumer sentiment numbers. Then it sort of treaded water for a few months, and then it did sort of sink at the first part of May, probably because gasoline prices have gone up a bit as we get ready for the summer driving season. The stock market's been kind of volatile lately. And we've had the Federal Reserve signal that it's probably going to take longer before we see a drop in interest rates.

And so all that kind of combined to make people a little bit more pessimistic about the direction of the economy, even though, as I say, a lot of indicators, whether it's the job market or consumer spending, suggest things are still going pretty well. Mara, this brings me, I think, to the great political mystery of this campaign season, which is the gap between the state of some of these economic data points, and they seem to be looking pretty good, and how folks feel about the overall health of the economy. And as Scott says, that does not seem to be tracking very good, at least for President Biden. Right. Well, there are two theories of the case about this gap between reality, so-called reality, and perception. One theory is people should feel better. Look how great all these indicators are. Wages are up, unemployment is down. But people are hearing all the time on the media, especially conservative media, how bad the economy is. So this is just a vibe session. The other theory of the case, which I

find a lot more compelling, is that American people are not stupid. Inflation is still high where it matters. Grocery prices are up. These are the things that people see every day. It doesn't matter if they just got a new job or if they got a raise. They go to the grocery store and they get mad. And the other mystery is why isn't the improving economy helping Biden? Well, inflation defeats presidents and inflation is the most important political economic indicator that there is. You're saying it defeats presidents. Are you thinking back to, say, the 1970s and Jimmy Carter? Yes, yes, yes. I mean, inflation is the most politically significant economic indicator and it still hasn't come down enough for people to feel that good times are here again. So what is your sense, Scott, if you have one, of where inflation needs to get to? Because to what Mara is saying, I mean, that jives with some of my own on-the-ground reporting recently when I was up in Pennsylvania. Folks will say, whether they are voters or not, that they are frustrated with how much things cost. I mean, in fact, I even interviewed an economist who said, yes, she knows, right? She understands how the economy works.

But even she acknowledges, yeah, she's frustrated that she's now paying more for a number of things that she was accustomed to not paying as much for before the pandemic. And so it's going to take time. I don't know if that economic timeline is going to align with the political timeline that Biden has. Yeah. Well, it's looking like it's not going to improve a whole lot between now and the summer. And that's the kind of pivotal months when people tend to lock in their impressions about the economy. It doesn't necessarily matter where the economy is in October. It matters where it is in June, July, as people are really sort of formulating and then solidifying their opinions about the campaign, the election. We have seen a big drop in inflation from its 40-year high in the summer of 2022 when it hit 9%. It's now 3.5%, give or take. But it's not come all the way back to 2%, which is the Federal Reserve's target. And even when it does come back to 2%, it doesn't necessarily mean prices are going to fall. In general, most goods

prices don't fall. Some things get cheaper. Television sets get cheaper, for example. But in general, even when inflation comes down, it just means prices stabilize at that higher rate. For example, grocery inflation has only been a little bit above 1% over the last year. But that doesn't mean your basket of groceries cost less than it did a year ago. It just doesn't cost a whole lot more than it did a year ago. And as long as people are paying more than they kind of remember paying three years ago, they're going to be frustrated by that. Yeah. That's the starting point I often hear about is the pandemic. Yeah. That's the most important. Scott just made a really, really important point. People,

voters do not care about the rate of inflation. They just care about prices. Mara, I want to ask you, though, about how relevant you think this all might be in the presidential election. And the reason I ask this is that if we look at the 2022 midterms, you know, I spent a lot of time myself reporting on inflation, reporting on how frustrated many voters were with the current state of the economy. And yet we saw Democrats considerably overperform expectations because it seems like they were voting for a variety of other issues, not on the economy. Right. I always say historical rules only work till they stop working. And what we thought we knew is that presidential approval ratings rose and fell with the economy. When the economy was good, presidents were popular and vice versa.

That connection seems to be broken. Donald Trump had a very good economy before COVID, and he was very unpopular. Biden has a vastly improved economy, and he's very unpopular. So that connection seems to be broken. In the 2022 elections, Democrats did a lot better, as you said, than they were expected to do based on the economy, because we all thought, well, inflation is the most important thing for voters. Well, guess what? We missed the fact that so was abortion, so was democracy. So were a lot of other things that people considered to be kitchen table issues, but we were asking the wrong

questions. So, you know, the rules are changing. Maybe a president can be reelected with a bad economy. Maybe even a president who's unpopular can be reelected. That's another what we thought was a hard and fast connection between the president's approval rating and what he would get in the popular vote. Maybe that's changed too. All right. Well, let's take a quick break and we'll be back in a moment. And we're back. And I want to dive into two specific areas of the economy that I have heard quite a bit about recently, and that is housing and credit card debt. Scott, let's start with housing. Yeah. Housing has been a double whammy right now for people who are trying to break into the housing market. There aren't a lot of homes on the market. And so the prices of homes have stayed quite high

at the same time because mortgage rates have gone up. They inched down a little bit last week, but they're still north of 7%. You have this double whammy of a high sales price and a high mortgage rate. So people's monthly payments are a lot higher than they would have been, say, in 2022 when we had very, very low mortgage rates. Now, we're probably not going to go back to those pandemic low mortgage rates, but we do expect mortgage rates to come down eventually. But for the moment, it's very difficult for someone trying to break into the housing market. And at the same time, those high mortgage rates are discouraging people who already own homes and have those low mortgages from trading up or making a move. It's a little

bit different in the rental market. Rent soared in 2022. And as a result, there was a lot of new apartment construction. As those new apartments come online, that has helped to keep a lid on rental increases. We're seeing much slower rental increases now than we were seeing a year or two ago. And in some of the really hot markets, we've even seen rents come down a little bit. Again, as with inflation, it's not so much that in general rents are going to fall, but they're just not going to go up as fast as they had been. But so the housing market is definitely a source of pain and frustration for a lot of people. Yeah. Scott, what about credit card debt? And how is that factoring into how people feel about the economy?

Well, credit card debt has been hitting record highs. It fell rather sharply in the early months of the pandemic when everybody was stuck at home and couldn't spend a lot of money. And then, of course, they were also getting relief checks from the government. So we saw credit card balances actually get paid down a lot in the early part of the pandemic. That's now turned around and credit card balances are going up again. What's more, the number of people falling behind on their credit card bills has gone up and is now back to where it was pre-pandemic. Not super high by historical standards. The pre-pandemic period was a pretty good economy, so credit card delinquencies weren't real high back then, but we are back to that level now. We're not at the sort of depressed area, depressed in a good way early in the pandemic when delinquencies were really

down. So credit card debt is going up. And again, because interest rates are high, the cost of carrying a balance on your credit card is really high now. It's north of 20% if you don't pay that credit card bill in full every month. So, Mara, let's talk about the president's message here on the economy, because they can't, at this point, six months out from an election, really talk about sweeping economic changes. So it seems like we've been seeing some micro-targeting. We're hearing a lot about cutting junk fees, right, requiring airlines to automatically issue cash refunds for canceled flights or capping credit card late fees, though that last one seems like it may be held up in the courts.

But it's a lot of stuff around fees. They seem to believe that this is a popular issue for many voters in a place where they can try to make some potential movement. Yeah, that's right. It is popular. Whether it's big enough to move votes is unclear, but people don't like paying extra fees. And Democratic presidents, when they are frustrated in their inability to do big things, like wipe out all the student debt, they try to do smaller things, like wipe out some students' debt. They try to do smaller things like wipe out some students' debt that they can or do these things about fees for airlines. And I don't know how, whether it can break through. That's been the big problem for the Biden White House. They do these things. They don't get credit for it. Or voters think that Trump did it for them. That's a perennial

problem. Mara, I also want to ask you about the president's tone when he's discussing the economy. He gave an interview to CNN's Erin Burnett last week. She asked the president with, you know, about six months left to go before the election, if he thinks he's going to be able to turn things around with voters and their perception of consumer confidence. We've already turned around. Look, look at the Michigan survey. For 65 percent of American people think they're've already turned around. Look, look at the Michigan survey. For 65% of American people think they're in good shape economically. They think the nation's not in good shape, but they're personally in good shape. This is a real problem and it's a perennial one. Voters say crime is terrible. How about in your neighborhood? Oh, it's fine. Or I hate Congress. How about your member of Congress? I like my member of Congress. So here people say they're

personally doing pretty well, but they think the overall economy is terrible. Is that because that's what they hear on the news or is it a proxy for partisanship? In other words, Republicans think the economy is terrible when there's a Democratic president in the White House and vice versa. So what the job of the White House is, is to take people's positive feelings about their own economic situations and get them to give Biden some credit for that. What do you make about this idea of saying that he's already turned the economy around? Because that doesn't seem to jive with anecdotal info. I've gotten one up and out on interviews. Right. By many measures, he has. But the trick for presidents is to hit the sweet spot between calling attention to their successes, but not overselling the economy when people think the economy is not that great. If you tell people that things are better than they feel it, they're going to get really mad at you and they're going to feel you're condescending or you're even lying to them. So you have to tout your achievements, point people to all the good things that you've done without overselling.

It is true. If you look at the Michigan data, and the president had the misfortune of speaking a couple of days before the most recent data that came out that showed that consumer sentiment had fallen to a six-month low. But if you look at the figures he's talking about, which are from March, you did have a majority of people saying their personal financial situation was better now than it was five years ago. The people who thought their personal situation was better generally than it was five years ago. The people who thought their personal situation was better generally said it was better because their wages had gone up.

The people who said their personal financial situation was worse generally pointed to rising prices. And prices and wages don't necessarily rise in tandem. In this country, we saw wages go up early in the pandemic. Then we saw prices soar as we came out of the pandemic. Now we're seeing wages climb faster than prices. So a lot of people are catching up, but they haven't all caught up. The challenge for the president is just going to be, do people's wages catch up to prices to the point where they're not as irritated about inflation as they were? And does that happen in time to change attitudes and improve that consumer sentiment before the November election.

All right. Well, Scott, thanks so much for coming on today's show. Always good to be with you. And let's leave it there for today. I'm Asma Khalid. I cover the White House. And I'm Mara Liason, national political correspondent. And thank you all, as always, for listening to the NPR Politics Podcast.