By Howard Schneider and Andrea Shalal
WASHINGTON (Reuters) – Joe Biden speaks to the nation tonight at a time of record-low unemployment, rising wages and diminishing fears of a recession — facts the U.S. president is likely to trumpet as a sign his economic plans are working on the heels of of the covid-19 pandemic.
But there are pressing economic issues, most notably the need to lift a legal limit on debt that, in the extreme, could cause the US government to stop paying its bills.
And it simmers in the background: a still-unresolved Federal Reserve fight to control inflation that may pose the biggest outstanding risk to Biden’s economy and over which the White House has little influence.
Biden will deliver the annual State of the Union address to a joint session of Congress Tuesday night, his second speech as president and his first since the Republican Party took control of the House of Representatives following the November midterm elections.
The general mood is still mixed, economists and pollsters report, with Biden’s approval ratings hovering around 40%. Consumers are “reconciling layoff announcements with record job numbers, inflation shifting but prices remain high. It’s not black and white,” said John Leer, chief economist at Morning Consult.
In his speech, Biden “has to thread a needle,” said Brian Gardner, a Washington-based strategist for investment firm Stifel. Despite positive employment and other trends, “people are still anxious and you can’t be deaf,” after a year in which prices rose at the fastest pace in 40 years and the Federal Reserve’s aggressive rate hikes discontinued home loans and other credit facilities for some families.
PETROL AND FALL IN INFLATION
Overall, economic data in recent months has moved in the president’s favor, particularly after inflation soared to a 40-year high last summer and government reports showed the US economy could enter a recession. .
The consumer price index fell from an annual rate of nearly 9% in June to less than 6.5% in December.
Gasoline prices that hit $5 a gallon over the summer were below $3.50 this week. Consumer confidence and household inflation prospects have improved.
Chart: Inflation Declining – https://www.ceiving.com/graphics/USA-BIDEN/INFLATION/znvnbklyzvl/chart.png
GROWTH OF GDP AND JOBS
After a tepid start to 2022, the US economy eventually grew more than 2% for the year after a stronger-than-expected second half, prompting companies like Goldman Sachs to reduce the perceived risk of a recession.
Progress on inflation, meanwhile, has come so far with no corresponding impact on job growth or the unemployment rate.
The economy added an average of half a million jobs a month in the first two years of Biden’s presidency, almost triple the rate seen before the health crisis – and 4.8 million in 2022 alone. The 571,000 added in January have showed unexpected continued strength and brought the economy within months of potentially returning employment to its pre-Covid trend.
Chart: The job vacuum facing Biden and the Fed
STRONG JOB MARKET
The earnings were distributed across sectors and demographic groups.
High-profile tech companies may lay off employees, but other companies have caught up on the slowdown thanks to still booming demand in restaurants and other services.
Unemployment rates for Blacks and Hispanics are close to the lowest levels recorded before the pandemic hit the US economy in March of 2020.
Chart: Unemployment by Race and Ethnicity – https://www.ceiving.com/graphics/USA-FED/JOBS/gdvzqqznapw/chart.png
What has yet to be determined, and what may shape the landscape that Biden and his Democratic Party will ultimately face in 2024, is whether inflation will continue to fall steadily and, if not, what the Fed will choose to do at the regard.
Fed officials view current levels of job and wage growth as unsustainable. If inflation doesn’t continue to slow, they’ve pledged to raise interest rates as much as necessary to win that particular battle, even at the cost of rising unemployment.
Biden’s message Tuesday night, however, will focus on what the administration sees as continuing progress and the sense that the pandemic’s economic impact has diminished.
“On average, American households are in a better position than they were before the pandemic,” National Economic Council Director Brian Deese said on Monday. “Today we are in an economy where we have real resilience.”
(Reporting by Howard Schneider; Editing by Heather Timmmons and Shri Navaratnam)