As President Biden struggles to sell his economy to skeptical voters, he faces the very real consequences of stubbornly high inflation, but he also battles human psychology.
Both of these factors may be particularly strong in California.
Most economists agree that the US economy during Biden's presidency achieved a remarkable recovery from the pandemic. And it continues to outperform expectations, even if California isn't doing as well. But polls have consistently shown that the general public holds a negative view of the economy, and thus Biden's handling of it.
While partisan politics, the effects of the pandemic and other factors have influenced people's attitudes, experts say inflation appears to be Biden's single biggest economic albatross.
He took office with a 57% approval rating, but in the last Gallup poll in March, his approval rating was 40%, with his handling of the economy considered one of his biggest weaknesses.
This is despite the fact that the inflation rate has fallen significantly from its previous highs, and Americans' incomes, on average, have risen to equal or often exceed the higher costs of most goods and services.
Inflation, as measured by U.S. consumer prices, rose in March to 3.5% from a year ago, the government announced Wednesday. It was slightly higher than expected, partly due to significant increases in prices for transportation, electricity and medical services. Food inflation was low, but shelter and energy prices remained somewhat high
Although the inflation rate has fallen since reaching a 40-year high of 9.1% in June 2022, it remains well above the Federal Reserve's 2% target, which could delay a hoped-for cut in interest rates.
Moreover, experts say the slowdown in inflation is not what most people notice. They do not seem as comfortable with the encouraging decline in inflation from 2022 as professional economists feel. After all, this does not mean that prices have dropped significantly; They're not rising as quickly as they used to.
That's where basic elements of human nature come into play, some economists and other analysts say: Consumers instinctively care more about the dollars they have to spend than about increases in their paychecks.
This is especially true when purchases are for everyday items like gasoline, the prices of which are higher in California than anywhere else in the United States.
Today, American consumers pay 20% more for milk, about 30% more for bread and more than 50% more for eggs than they did in February 2020, just before the COVID-19 pandemic began, according to the U.S. Bureau of Labor Statistics. Wednesday report.
Rents have risen more than 20% from pre-pandemic levels, and electricity costs have risen by about 30%.
For Californians, even as wage gains match or exceed consumer price increases, higher inflation could have a stronger real and psychological impact because the state is much more expensive to begin with.
“They're concerned about whether or not inflation will come back,” said Mark Baldassari, director of the statewide survey at the Public Policy Institute of California. “It creates a new set of circumstances and concerns in California, where housing and cost of living are a major concern, especially for low-income people but also middle-income and younger Californians.”
In a statewide poll he conducted last fall, Baldassare found that a growing share of Californians are “not very happy” (26% compared to 20% in 2011 and 13% in 1998). Among the least happy groups: the age group from 18 to 34 years; Tenants. and those whose household income is $40,000 or less.
Nationally, the prices of all goods and services have jumped by about 20% over the past four years. This was a particularly startling shock to many consumers because the vast majority of them had never experienced anything like this in their adult lives.
The last time inflation reached or near double digits was in the early 1980s, and for most of the past 30 years it has been close to the Fed's 2% target.
“Part of the story is not just that we had high inflation, we had high inflation with a generation that was ill-equipped to deal with it,” said Justin Wolfers, a professor of public policy and economics at the University of California, California. Michigan. “Young people today might think that prices have gone up by 20%, and no one will ever be able to recover me.”
But in fact, Wolfers noted, gains in wages and salaries have, on average, outpaced inflation since the pandemic, with low-income workers seeing the highest percentage gains.
Older people who have experienced major inflation may realize that inflation is usually a temporary problem: over at least the past half-century, when the cost of living has risen sharply, workers' incomes have also risen, but not immediately.
Older generations understand this dynamic: “Inflation is driven away by rising prices and then driven back by rising wages,” Wolfers said.
In California, workers earned an average of $1,595 weekly in the third quarter of 2023, the most recent data available from the BLS. This is 23% higher than the same quarter in 2019.
That's about five percentage points higher than the price increase over a similar period in California, based on data from the state Department of Finance.
But even though average salaries are now matching or exceeding price increases — meaning most consumers' purchasing power has not eroded, Wolfers and other economists say — that's not how people process things.
When prices rise sharply, people get upset, think it is unfair and unjust, and look to the government or someone else to blame. But if their wages rise by the same amount, people tend to “externalize” the increase, feeling like they have earned it, even though in reality the larger salary is largely a result of higher prices – and the resulting ability of employers to pay Higher wages for their employees. .
This psychology represents a major challenge for Biden, since it will take time for consumers to overcome their internalization of high inflation. Although California will likely not participate in the presidential election scheduled for November, the gloomy mood among many residents due to inflation may be amplified because the state's economy has been lagging behind the nation.
Between February 2020 and February 2024, payroll jobs in California increased by 1.7%, half the national job growth rate. California's unemployment rate in February was 5.3%, compared with about 3.9% in the United States as a whole, although the state's Treasury Department chief economist, Somjita Mitra, said California's share of the long-term unemployed was relatively lower.
The Conference Board's latest consumer confidence survey shows that California lags significantly behind other large states like Florida, Texas and New York.
There are new signs that more California consumers are struggling financially. For example, the share of credit card delinquencies in December rose to the highest level since late 2009 around the time of the Great Recession, according to the California Policy Lab at the University of California, Berkeley.
In California, credit trends are deteriorating; “They're not moving in a good direction,” said its CEO, Evan White.
Household surveys conducted by the Census Bureau, most recently in February and March, found that Californians struggle more than the national average when it comes to financing housing and paying typical costs of living. A much larger percentage of Californians than most other states reported to the Census that they had changed their driving behavior because of the cost of gas.
Gasoline prices in both the United States and California increased by about 29% compared to February 2020, according to the US Energy Information Administration. But the average price of a gallon of gas in California was $4.83 last month, compared to the national average of $3.45.
Gas prices have risen again in recent weeks, and if that continues that could be another big hurdle for Biden, said Mark Zandi, chief economist at Moody's Analytics.
Another key economic factor that Zandi believes could sway some voters is whether interest rates will fall.
For homeowners, higher inflation means higher home prices as well. But renters, especially those in their peak homebuying years, in their 30s and 40s, have felt locked out of the market by high inflation and mortgage rates — especially in expensive California.
“This really undermines their thinking about the economy and their financial health,” Zandi said.
