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Summer is officially over, and as kids and workers return to their routines, the 2024 campaign is gaining momentum. Joe Biden is proudly presenting “Bidenomics” to voters, highlighting job growth and a slight increase in real income.
However, there may be a potential obstacle to Joe’s optimistic outlook. American consumers, who have been enthusiastically spending on vacations, dining out, and travel, might soon put a damper on the festivities. Financially, consumers are stretched thin, having financed their summer indulgences and post-pandemic splurges by saving less and borrowing more. This trend is not sustainable. People have been comfortable accumulating debt because jobs have been plentiful and the fear of sudden income loss was low. But that sentiment seems to be shifting.
The economy could unexpectedly hit a rough patch as we enter the election season, evident from declining consumer confidence, increasing debt delinquencies, and a weakening job market. These factors could significantly impact Biden’s chances of re-election, especially considering that only 38% of people currently approve of his handling of the economy, while 58% disapprove.
While a recession is not the consensus forecast, recent data suggests that the jobs market is faltering. In August, employers added only 187,000 jobs, well below the average of 271,000 over the past year. Additionally, reported job gains for previous months have been revised downwards, and wage growth has slowed. This deceleration aligns with the Federal Reserve’s intent through its aggressive interest rate hikes. The looming question is whether this slowdown will progress into layoffs.
Despite skeptics’ expectations, employers across the country have continued to add or retain workers. However, if the job market weakens further, CEOs are likely to adjust their strategies, which might already be happening. The most recent JOLTS report indicated a decline of 338,000 job openings to 8.8 million in July, alongside a 7% decrease in the number of voluntary job quits, reflecting heightened uncertainty among workers. Although the number of unemployed individuals per job opening remains low, it is gradually increasing.
August saw a rise in unemployment rates to 3.8% from July’s 3.5%, partly due to increased labor participation as more people enter the job market. This rise can be attributed to the reduced availability of COVID-related benefits, including the imminent resumption of interest payments on student loans following a three-year pause. However, the labor force participation rate of 62.8 still falls short of the pre-pandemic level of 63.2%.
Last month, consumer confidence plummeted by the most in two years, primarily driven by declining optimism about employment conditions. A Chief Economist at the Conference Board noted that fewer consumers considered jobs to be plentiful, while more believed that jobs were hard to find. Rising inflation and increasing interest rates on borrowings, with some credit card rates exceeding 20%, contributed to the overall gloom.
This decline in optimism has affected various age and income groups, but it is particularly prominent among low-income Americans who have experienced the burden of soaring prices for essentials like food and rent.
A recent survey by the Census Bureau revealed that 42% of households dependent on SNAP are skipping meals due to financial constraints, and an additional 55% are reducing their food intake to make ends meet – double the number from the previous year.
In addition, rising defaults on consumer debts, especially in the auto loan sector, are raising concerns. Delinquency rates among low-income Americans with subprime loans have increased from 5% during the financial crisis to almost 7% today.
As Americans accumulate record levels of debt, their savings are plummeting. In July, consumer spending rose by 0.8%, while incomes only increased by 0.2%. This disparity reflects increased borrowing and a decline in the savings rate, now at 3.5% compared to the historical average of 8.9% from 1959 through 2023 and the 4.7% rate recorded in May of this year.
Other alarming indicators include the decline in the Conference Board’s leading indicator index for 16 consecutive months, with an accelerated downturn in August. Additionally, the inverted yield curve, a reliable predictor of an economic slowdown, is showing signs of a potential downturn within the next year.
While most analysts have abandoned pessimistic forecasts after consistently being proven wrong over the past year, today’s optimistic consensus is still concerning. As top economist Ed Hyman of ISI reminds his clients, everything seemed fine just before the great recession until it wasn’t.
Liz Peek is a Fox News contributor and former partner of major Wall Street firm Wertheim & Company. She is a frequent writer for The Hill and contributes to Fox News, the New York Sun, and other publications. To know more about Liz Peek, visit LizPeek.com or follow her on Twitter @LizPeek.
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