On March 7 President Biden will deliver his third State of the Union address before both Congress and the American people. His speech will surely offer a lengthy compilation of achievements. After all, President Biden, if he is to win re-election, must convince voters that his record of accomplishment warrants his return to office in 2025.
As the incumbent president, Biden has a long list of policy accomplishments to his credit. He has also suffered various setbacks, at home and abroad. And he faces many questions, above all about his age and fitness for office.
Yet as economist Maury Harris noted in a recent Jackson Hole Economics article, US election outcomes typically reflect the economic track record of the incumbent. In what follows, we consider both national and selected US state economic data to offer a picture of how things are shaping up ten months before Americans go to the polls.
The national economy
As Yale University economist Ray Fair has demonstrated, the postwar history of US presidential popular vote outcomes hinges heavily on the performance of two key economic variables: the annualized growth of real per capita GDP and the rate of inflation.
Real per capita GDP growth measures how much fast US incomes are rising, adjusted for inflation. It a gauge of how broad living standards are improving.
On this measure, Biden’s record stacks up favorably, even when adjusting for pandemic-related distortions. Over his first term, real US GDP per head has risen at a 3.1% annual average rate. That compares favorably with the postwar rate of 2.0% or this century’s 1.3% rate. It also tops the four-year figure recorded in Trump’s term of 0.9%.
Of course, the Trump and Biden numbers are significantly impacted by the massive economic dislocations experienced during the pandemic. Removing the 2020 economic collapse from the Trump numbers raises his measure of real per capita GDP growth from 0.9% to 2.0%. Similarly, removing the first year of Biden’s term, during which the economy rapidly recovered from its pandemic lows, lowers his measure to a 1.8% annualized growth rate.
Yet that might be an unduly harsh yardstick for President Biden, insofar as his primary challenge on assuming office in 2021 was to rescue the US economy from its pandemic collapse. Surely, his record ought to reflect that accomplishment. Moreover, over the past three quarters, which is the time span identified by Professor Fair as most significant for election outcomes, Biden’s real per capita GDP growth figure improves to 2.3% annualized rate, topping the postwar, 21st century, and Trump averages.
What about inflation?
In his model, Professor Fair has found that the GDP deflator, in contrast to the more widely followed Consumer Price Index (CPI), best accords with voters’ feelings about inflation. Using that metric, President Biden’s first term (to-date) record is poor, with an annual average inflation rate of 4.9%. Even stripping out the first year of the pandemic only lowers the figure to 4.4%. And on the metric used in Professor Fair’s election model, namely the average of the past 15 quarters, Biden’s number is a still high at 4.3%. By contrast, the postwar average is 3.1%, the average since 2000 is 2.3%, and Trump’s first-term average was 1.8%.
The one factor working, perhaps, in President Biden’s favor is that over the past four quarters, inflation (as measured by the GDP deflator) has fallen to a 2.6% rate.
Other economic measures may feature in the campaigns and in voters’ minds.
Productivity is one, albeit it is a statistic more beloved by economists than voters. It measures how many more goods and services Americans can produce per hour worked, which is considered the single best determinant of living standards.
In President Biden’s first term, economy-wide productivity growth averaged a paltry 0.4% annually, well below its postwar average of 2.1%, its average since 2000 of 1.9%, or Trump’s record of 2.6%. Once again, however, the pandemic had a big impact. Trump’s pre-pandemic productivity growth rate dips to 1.8%, while over the past four quarters the Biden figure jumps to 2.7%.
One statistic that voters care about a lot more than economists is gasoline prices. Unadjusted for inflation, the price per gallon for regular gasoline is virtually the same today as it was in 2008, meaning that considering even modest gains in household incomes, gasoline is significantly less expensive for most Americans today than it was fifteen years ago.
Still, the yardstick voters are apt to use is simply watching the numbers add up every time they put the nozzle in the tank.
Under President Trump, gasoline pump prices oscillated only a bit, and the average nationwide gasoline price was virtually unchanged from the beginning of his term to its end, at roughly $2.25 per gallon. In contrast, the price of a gallon of regular gasoline skyrocketed eighteen months into President Biden’s term, peaking at $4.84 per gallon. Since then, however, it has fallen nearly 40% to its present level of $2.94 per gallon, albeit still far above where it was when Biden took office.
A final national statistic, which we will also look at in our consideration of ‘battleground’ states, is real median household income, a rough approximation of the ‘average’ American’s pay, accounting for inflation.
To provide some historical context, median real wages fell from 1979 until 1997 (i.e., workers ‘average’ wages failed to keep pace with inflation), before it rose during the five-year interval from 1997 to 2002. Thereafter, median real wages stagnated until 2014, when they once again began to rise until the arrival of the pandemic. Real wages fell sharply from 2020-2022 (dropping by 8.7% over eighteen months). Since mid-2022, however, median real wages have risen 3.3% and are now higher than when President Biden assumed office in January 2021.
As even casual political observers know, US elections are increasingly contested in a half dozen ‘battleground’ states. That’s because the electoral college, not the national popular vote, determines the outcome of the presidential election.
It is therefore of particular interest to see how the ‘state of the economic nation’ is today in the six states widely seen as those that will determine the November’s election outcome: Arizona, Georgia, Michigan, Nevada, Pennsylvania, and Wisconsin.
We begin with real median income. Notably, in all six ‘battleground’ states, real median family income (2022 basis) is below the national average. Rural, minority, ‘low-tech’ manufacturing, and agricultural employment are key reasons why average incomes in these key swing states are below the national average. In Nevada, the preponderance of lower paying services jobs (e.g., in hospitality, casinos) is also important.
A key electoral factor, therefore, may be the economic outcomes that shape voting decisions among the middle- and lower-income quintiles of the US population, particularly in swing states.
As is well known, for over fifty years US income distribution has become more skewed, with the share of national income going to the top American earners inexorably rising, leaving an ever-smaller fraction for the rest.
Since 1970 the US ‘Gini coefficient’, a measure of income inequality (with ‘0’ being perfect equality and ‘1.0’ perfect inequality) has risen from .39 to .49, reflecting more skewed income outcomes. Unsurprisingly, the share of total national income flowing to the top 20% of Americans followed a similar trajectory, but it also appears to have peaked in 2021 at 52.7%.
Indeed, owing to various pandemic policies, including government transfer payments and the enhanced child tax credit, measures of income shares turned in 2022, with lower quintiles registering their first advances in decades. The data for 2023 are not yet available, but other data, including real wage gains by income cohort, suggest that lower- and middle-income real income gains may have persisted over the past 12 months.
To be sure, it is premature to know whether the recent recovery income flowing to ‘working’ Americans is significant or long enough to enhance President Biden’s elections chances later this year, though it surely cannot hurt.
A mixed picture emerges when looking at state unemployment rates. As of December 2023, half of the ‘battleground’ states (i.e., Georgia, Pennsylvania, and Wisconsin) had unemployment rates below the national average (3.7%), while the other half (Arizona, Michigan, and Nevada) had jobless rates above the national rate.
Another metric of interest is home ownership rates. Many Americans, above all younger generations, lament the soaring cost of owning a home. According to some data, less than half of Americans can now afford a home purchase.
As noted, that is particularly a generational problem. Among prospective first-time buyers, housing affordability is below a third of the population in at least nine states plus the District of Columbia. Yet existing home ownership rates are typically much higher. For instance, nationwide, the homeownership rate is 65.5%, with rates above that level in half of the ‘battleground’ states.
Low levels of home purchase affordability, in other words, do not align geographically with where presidential elections are won and lost. The dividing lines are by age, not state. Put differently, the issue may be whether disillusioned younger voters, frustrated by their inability to get on the housing ladder, will reject the incumbent (Biden).
Summary and conclusions
What, then, can we conclude about the ‘economic state of the union’ and that of ‘battleground’ states?
The main picture that emerges is blurry, its fuzzy contours reflecting good, bad, improving, and stagnant economic outcomes across an array of variables, by state and even age cohorts. It is not as simple as calculating Ronald Reagan’s famous ‘misery index’ (the sum of the unemployment and inflation rates). If it were, Biden would win in a landslide and that expectation would be reflected in today’s polling numbers, which it assuredly is not.
It is also not reflected in surveys of household confidence, which many commentators have noted may increasingly reflect partisan bias, not objective consideration. If, instead, we judge households by what they do rather than what they say, their spending habits (as reflected in strong retail sales or broader consumption numbers) suggest they feel quite good about their personal economic situation.
It is also possible that a key premise of this piece, namely that the 2024 presidential election will swing on economics rather than, say, foreign policy, social or other political issues, is incorrect. Yet the beauty of what economists like Ray Fair or Maury Harris have demonstrated is that for all the ‘this-time-is-different’ narratives, the data suggest that when voters draw the poll-place curtains, their pocketbooks drive their decisions more than any other consideration.
We shall see.