Why Democrats are set to lose

Since rising to $5 per gallon in June, gasoline prices have gone President Biden’s way. The high price of gasoline since then, at about $3.80 per gallon, has neutralized what looked like a catastrophic liability for Biden and his Democrats.

Still, Biden’s party looks set to lose control of Congress in the Nov. 8 midterm elections anyway. Abortion Protection Roe v. Wade in June was supposed to be a game changer for Democrats that could increase turnout among angry voters eager for a Democratic Congress to counterbalance the new conservative court. In recent weeks, however, abortion has declined as a voting issue, displaced by this old stalwart, the economy, stupid.

New analysis by Moody’s Analytics singles out real disposable income and inflation-adjusted home values ​​as the two economic indicators that best predict the fate of the ruling party in the midterm elections. Home values ​​should be a Democratic advantage. Prices are rising 13% year on year, while inflation is 8.2%, for a real gain, adjusted for inflation of around 5%. That would normally be great news for incumbents.

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

But the distortions related to COVID undermine the value of the hot housing market for Democrats. As pandemic demand for real estate soared in 2020 and 2021, rising prices became a huge boon for sellers and owners. Buyers, however, faced sticker shock, and many prices out. Now they are getting whiplash when you as the Fed raise interest rates, to fight inflation. Rising rates and persistently high prices have produced an affordability crisis, with Oxford Economics’ housing affordability index at its worst level since 2007, the peak of the last housing bubble. A troubled housing market unsettles voters, rather than reassures them.

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As for real income, by some measures, it’s near record lows. Real incomes are down 4.5% from a year ago, on a seasonally adjusted basis, according to government data. The average quarterly change going back to 1970 is a 3.1% gain. So this is a particular pain point for consumers right now. This chart tells the story:

To understand what’s happening to incomes, ignore the unprecedented peaks and troughs that occurred in 2020 and 2021, as workers flooded into the workforce, then returned. Instead, notice where real incomes have leveled off as the labor market has returned to normal. Real incomes are down more than at any time during the last 60 years, including the period in the 1970s and early 1980s when inflation was even higher than it is now. Wages will probably catch up with inflation over time, but right now the typical worker is falling seriously behind.

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

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High gas prices have never been America’s biggest problem

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

But voters have economic concerns beyond gas prices, as they should: Housing and food costs account for a larger portion of the typical family’s budget than gasoline. Food prices are up 13% year over year. Housing costs rose 8%. Nominal wages increased by only 5%. Paychecks don’t keep up with price increases.

While voters have shown less concern about gas prices over the past several weeks, they remain nervous about the overall economy. “Americans’ views of the nation’s economy remain overwhelmingly negative,” Pew Research reported on Oct. 20, with its latest poll showing 82% of voters rated 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, a little more than 69% are very concerned about the price of gasoline.

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Gallup polls have shown that the economy is the most important voter issue, by far, all year. And there was little change in concerns about inflation, even as gas prices plunged. In May and June, 18% of voters said inflation was their biggest concern. In September, it was 17%, which is barely an improvement. Falling gas prices have not convinced anyone that overall inflation is declining. The portion that says abortion rights are the most important issue, meanwhile, is just 4% – down from 8% in July.

There probably isn’t much more Biden could have done over the past several months to combat food inflation or other price hikes that have disheartened voters. The president’s tools are limited to begin with, and it is the job of the Federal Reserve to address inflation through monetary policy. Raising Fed rates will probably do the job, eventually. But it will be too late to help the Democrats retain power in 2022. Not 2024, maybe.

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

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