Rising consumer sentiment is fuelling hopes inside the White House that Americans will warm to President Joe Biden’s economic leadership, as inflation slowed to a milestone level.

Fresh data released on Friday (Dec 22) showed improvement on prices and consumers’ views on the economy. Gasoline costs have fallen substantially this year, mortgage rates have receded and supply-chain snarls have mostly abated.

Biden’s team has argued for years the president’s policies have produced strong growth and low unemployment, but those appeals have failed to gain traction as high inflation put a dent in Americans’ pocketbooks. 

The most recent numbers have given the White House renewed confidence they can turn a major liability for the president into a potential asset, or at least a neutral factor, as they seek to persuade voters to give him a second term in 2024. White House aides fanned out across the airwaves and social media channels Friday to take a victory lap. 

“If you look back over the course of the year, it is really stunning how much progress the economy has made,” Biden’s top economic adviser, Lael Brainard, told Bloomberg Television. The consumer confidence jump “suggests that Americans may finally be beginning to feel a little more confident, a little bit more secure. But the president is going to continue to push us to work”.

Economic data released over the past few months have been largely positive – the inflation rate has declined but not yet reached the Federal Reserve’s annual target. Unemployment remains below 4 per cent and growth is strong.

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The core personal consumption expenditures price index, a measure favored by the Fed, barely rose in November and is now under the central bank’s 2 per cent target in the past six months, data published on Friday showed. Two US consumer sentiment gauges this week also recorded big monthly increases.

Brainard cited Friday’s PCE data in particular during a series of media appearances throughout the day.

“That should give everyone a lot of confidence that inflation is sustainably down and we can continue to see good growth in real disposable incomes, in real wages,” she said. 

But anxiety is still rooted to inflation’s big surge.

“In the years before, real wages fell steadily, inflation was a real issue, and I’m not convinced people are over that,” said Douglas Holtz-Eakin, president of the right-leaning American Action Forum.

Voters give Biden little credit for his stewardship of the economy, polls show. Republican presidential frontrunner Donald Trump led Biden 51 per cent to 33 per cent when voters were asked who they trust more to steer it, according to a Bloomberg News/Morning Consult survey released earlier this month. 

Surveys have also regularly shown a disconnect between how people feel about the economy and how, by some measures, it’s performing. 

“People are not paying attention to macroeconomic data; they are paying attention to how much their groceries cost, and groceries are a lot more expensive,” said Michael Strain, director of economic policy studies at the centre-right American Enterprise Institute.

Biden’s administration has begun delicately arguing that, for some, conditions have actually improved even if they might not feel that way. The median American worker had US$1,000 more left over when buying the same goods in 2023 as in 2019, because of gains in inflation-adjusted incomes, according to a Treasury Department analysis published Dec 14.

“Americans are beginning to feel better about the overall economy, just as they have, for some time, felt good about their financial situation,” said Daniel Hornung, deputy director of Biden’s National Economic Council. “As inflation continues to moderate, that dynamic should only intensify.”

Petrol prices, which are closely tied to consumer sentiment, have fallen sharply from highs in the aftermath of Russia’s invasion of Ukraine. 

Neale Mahoney, an economics professor at Stanford University who served on Biden’s National Economic Council, said two factors are contributing to the gap between sentiment and data: a simple lag effect and a partisanship skew.

Research from Mahoney and former White House economist Ryan Cummings found the psychological weight of inflation fades from consumer sentiment at a rate of roughly 50 per cent per year, meaning people don’t immediately relax when price increases subside.

“It’s quite reasonable for consumers to still feel some sticker shock today,” he said. “We think the downward drag from inflation on sentiment will significantly ease.”

Biden’s aides cautioned events can always derail a recovery, even as hopes grow a recession can be avoided. 

Brainard on Friday acknowledged geopolitical risks that could threaten the economy, including attacks in the Red Sea that have disrupted global shipping, though she said they have not yet clogged supply chains.

Holtz-Eakin said he has never understood the White House push on what it calls “Bidenomics”, given the risks of fresh shocks and current conditions. Forecasts are for 1.2 per cent gross domestic product growth in 2024, compared to 2.4 per cent in 2023, according to the median estimate of economists surveyed by Bloomberg.

“There’s downside risks from there,” Holtz-Eakin said. “It’s still a risky strategy.” BLOOMBERG