The Biden Stagflation Arrives – WSJ #Biden #Stagflation #Arrives #WSJ Welcome to Lopoid
President Joe Biden
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Call it a recession or stagflation or a slowdown or a transitory blip or even Ethel or Fred—however you name it, the U.S. economy described in Thursday’s GDP report for the second quarter is struggling. That’s distressing for the American families and businesses living through it, and a political liability for the Democrats presiding over it. No wonder they want to pretend it’s not happening.
The economy contracted 0.9% in the April-June quarter, following the 1.6% contraction in the first three months of the year. The retreat is broad-based. Consumer spending, with an increase of 1% compared to 1.8% the previous quarter, is now at its slowest rate since the pandemic.
Recent earnings from retailers such as
suggest this is because inflation is eating into household incomes, and Thursday’s data show the problem. Inflation as measured by the personal consumption expenditure index (the Federal Reserve’s preferred measure) hit 7.1% in each of the first two quarters. You can see the rising PCE price trend compared to falling PCE consumer spending in the charts nearby.
Falling “core” inflation, of 4.4% compared to 5.2% the previous quarter, is no consolation when the food and fuel excluded from that core measure make it harder for households to afford other things. Real wages are down, with real disposable income falling 0.5% this quarter, the fifth straight quarterly decline.
Private investment is falling, too, with gross private investment down 13.5% in the quarter. Fixed investment declined 3.9%, and residential is down 14% as the housing market cools.
Blame, well, everything. Falling inventory investment is a sign businesses are bracing for slower demand. Widespread inflation wreaks havoc with business costs and investment plans. Another culprit is the refusal by the Biden Administration and Congressional Democrats to disavow tax increases or costly regulations.
International trade was the brightest spot, and the quarterly contraction would have been deeper without export growth of 18%. But Europe is falling into recession amid an energy crisis, and China’s economic ills and zero-Covid lockdowns will weigh more heavily on America’s foreign markets moving forward.
Americans lately have been treated to the spectacle of Biden Administration officials and allies pretending the economy is only in recession if the National Bureau of Economic Research says it is (a year or more after the fact), or if employment is falling (maybe only a matter of time as investment and confidence plunge). The idea is to pretend the bad news isn’t happening, but the political risk is that President Biden looks out of touch, as he did Thursday when he said the negative second quarter showed “signs of economic progress.”
Mr. Biden inherited a growing economy primed to roar back from the pandemic, and in barely a year and a half he has dragged America back to the 1970s. The best word for what we have now is stagflation, the ugly combination of slow growth and rapidly rising prices. This is what the policy mix of trillions in federal spending, heavy regulation, the threat of higher taxes, and easy money has wrought. Time to do the opposite.
Review & Outlook: ‘I’m taking inflation very seriously and it’s my top domestic priority,’ says Joe Biden. Perhaps he should follow the advice given to George Costanza in TV’s ‘Seinfeld.’ Images: NBCUniversal/Getty Images Composite: Mark Kelly
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Appeared in the July 29, 2022, print edition.