The president can tout his jobs numbers and recovery from the pandemic, but inflation remains a problem.
President Joe Biden gives his second State of the Union speech Tuesday, expected to focus heavily on his economic record over the past two years.
And it is something that he can be proud of, with a solid recovery from the coronavirus that was prevalent as he took office in January 2021 marked by strong job growth and record low unemployment but also dogged with high inflation and interest rates. Indeed, heading into the speech Biden was greeted with a January jobs number that showed 517,000 jobs had been created during the month, far outpacing estimates and quieting talk of an imminent recession.
“You don’t have a recession when you have 500,000 jobs and the lowest unemployment rate in more than 50 years,” Treasury Secretary Janet Yellen told ABC’s “Good Morning America” program on Monday.
“What I see is a path in which inflation is declining significantly and the economy is remaining strong,” Yellen added.
There is no one magic number that encapsulates the health of the U.S. economy, but there are some common measures that offer an assessment – and that highlight the wins and losses.
The broadest measure of the economy, the nation’s gross domestic product, ended 2022 with 2.1% overall growth for the year. The prior two years were affected heavily by the pandemic, with 2021 registering a 5.9% annual gain after 2020’s decline of 2.8%. Prior to Biden’s presidency and the coronavirus, GDP increased by an average of 2.3% annually from 2016 to 2019.
If Biden has an economic legacy for his first two years in office, it is not something he is likely to tout. Rising prices that reached four-decade highs last summer allowed his political opponents to attack him for “Bidenflation.”
The consumer price index, the most common measure of inflation, hit a peak of 9.1% in June of last year. When Biden took office, the annualized rate was 1.4%. As of December, it stood at 6.5%. But inflation is coming down and the average of recent months has brought it low enough that Federal Reserve Chairman Jerome Powell lauded “disinflation” last week while acknowledging it remains well above the Fed’s target of 2%.
Political Cartoons on the Economy
Another measure that economists follow, the personal consumption expenditures price index, was at an annual rate of 4.2% when Biden took office. It is now at 5%.
The cause of much of the high inflation, which began accelerating in 2021 and peaked last year, has been a rise in the price of energy that led to gasoline prices topping $5 a gallon nationally last summer. Although prices were rising from the recovery from coronavirus, they spiraled upward following the February 2022 invasion of Ukraine by Russia. They began falling during the second half of 2022 and now are about $3.45. The drop has been a significant contributor to the recent decline in inflation.
But many economists also believe that the easy money policies of the Fed, coupled with the economic stimulus plan that Biden marshaled through Congress shortly after taking office also stoked the fires of inflation.
The growth in the number of people employed during Biden’s term in office has been something he can crow about even as many of the jobs added were recovered from those lost during the pandemic. In 2019, the last full year before the coronavirus distorted comparisons, the economy added an average of 176,000 jobs a month. In 2021, 534,000, and then in 2022, 401,000.
The January number of 517,000 may well have been juiced by revisions that take place at the start of each year, but there is no denying that the strength of the labor market has surprised economists over the past year, especially since the economy has been battling inflation and high interest rates.
The unemployment rate, meanwhile, sits at 3.4%, the lowest since 1969 and slightly lower than the 3.5% recorded in February 2020 before the pandemic.
The Stock Market
Unlike his predecessor, Biden does not make much of the state of the market. Still, stocks have done well during his two years in office – although the tenure has had its share of volatility as investors have swayed between worries about recession and the Fed’s interest rate policy.
Prior to the pandemic, the S&P 500 noticed a health gain of 28.9% in 2019. Despite crashing amid the arrival of the coronavirus and the resulting lockdowns and halt of economic activity, the market managed to gain 16.3% the following year. In Biden’s first year in office, the S&P rose 26.9% as the recovery took hold and stimulative policies from Washington rewarded investors. Last year saw a downturn as the Fed’s interest rates began to bite and worries over slowing growth intensified. The S&P lost 19.4% as it reached bear territory (a 20% or greater loss) at times. This year has started out on a good note, as investors gamble the Fed is nearing an end to its hiking cycle, posting about a 7% gain so far in 2023.
Taken together, the economic record of the past two years has been one of solid growth, marred by fears of a recession and volatile markets. But it has also produced outsized job gains and more resilience overall than many would have predicted coming out of a once-in-a-lifetime pandemic.
The one black spot – and one that will probably stick with Biden as he navigates the second half of his presidency – is inflation. But he can at least argue now it is beginning to unwind from its heights of 2022.