– [Narrator] See this gap? It's one of President Joe
Biden's first obstacles toward reelection. Up here is how the economy
performed up until the end of last year by two key metrics. Both GDP and employment are above average, but down here, almost two
deviations below that average is how voters feel about it. This line shows the
Consumer Sentiment Index, a national survey out of
the University of Michigan. – Consumer Sentiment has been
a little bit of a mystery. We actually saw a historic
low in the Michigan survey. It was even worse than it was
during the Great Recession. – [Narrator] And that matters for Biden because if you look at Consumer Sentiment when an incumbent has run for reelection, you'll see that when
people are feeling good about the economy, incumbents
have typically won. But when people feel worse, they've lost. And when people are in the
middle, well we'll get to that. Just know that ahead of the 2024 election, experts are watching this point. And whether this gap between the economy and how people feel about it might shrink. (upbeat music) Unlike consumers, many economists are feeling
pretty good about the economy.
– This is one of the most
well-balanced economies we've seen in a long time. – [Narrator] The GDP, which measures the total value of goods and services produced is growing. For 2023 as a whole, it
rose over $1 trillion. When adjusted for inflation,
that's a 2.5% increase, which is right in the
middle of the targeted 2 to 3% for GDP. – GDP is really the clearest story, which is we've had steady growth. There hasn't been a
recession for several years. Things have been moderate, but steady. – [Narrator] And a growing GDP is usually a good sign for employment, which we're seeing with
today's strong labor market.
If we look at the unemployment rate and zoom into the most recent
data, you see that it has sat below 4% for the last two years, the longest stretch in decades. By this metric, almost everyone
who wants a job has one, but unemployment rate in GDP
aren't necessarily predictors of how people feel about the economy. – People don't eat the GDP number. They eat the food they
buy at the grocery store. – [Narrator] And that food
has gotten more expensive. This chart is what the
Federal Reserve uses to gauge inflation known as the personal consumption
expenditures price index or PCE. Anytime the line is above here, inflation is higher than the
Federal Reserve wants it.
And for all of 2022, inflation
was above that targeted line. But which prices rose is more important. – Certain types of
prices are loud metrics. They matter a lot more
when we're talking about how they influence people's feelings and thoughts about the economy, – [Narrator] Namely food and energy. Look at this inflation line with food and energy included versus inflation without those categories. In June of 2022, the
index with food and energy was almost two percentage points higher than the index without those categories.
This led consumers to spend over 11% of their disposable income on food, the highest percent in over 30 years. And food prices are what
economists refer to as sticky, which means once they go up,
they're unlikely to come down. – There's this notion of
familiarity with prices. Even I find myself
referring back to prices, which I was more familiar
with when I was younger. I mean, I bought a soda for 25 cents and that's not an option anymore. And so you get these reference points when it comes to prices, and it takes a long time
to move off of that.
– [Narrator] So even though
this inflation measure began trending down almost two years ago, consumers might still
be feeling its effects. – [Ben] People care more about the level of prices than the fact that they're rising
more slowly than before. – [Narrator] And according to
a Wall Street Journal poll, 74% of voters feel that
their household income hasn't kept up with inflation. – That's a very daunting
number for the president. – [Narrator] So, how has income fared? Let's look at real income,
which includes wages as well as other sources
like capital gains and is adjusted for inflation over time. Anytime the line dips below this one here, income is not keeping up
with the cost of living. And what you see with this
dip is that for most of 2022, average income changes
didn't offset rising costs.
The good news today is that with inflation mostly coming down that has now flipped. Income adjusted for
inflation has been rising above the cost of living. It may take a while
for consumers to adjust to price expectations for food, and it's not clear if that
will happen fast enough to help Biden, especially since
voters are also struggling with the price of housing. When consumers were
asked whether they think it's a good time to buy a
home, the majority said no. In fact, the number of consumers
that think it's a good time to buy a home is the lowest since 1982. – So maybe people are saying, "I'm unhappy the overall economy," but what they really mean to say is, "I'm just really frustrated
by how expensive housing is." – [Narrator] And looking
at the prices of homes, it's clear they rose
significantly during the pandemic.
– Housing prices are sensitive
to a whole host of things, population changes to interest rates, but ultimately what probably
drives housing prices as much as anything is the
demand for housing relative to supply of housing. And right now, we know the supply of housing is really, really weak. – [Narrator] But even that may not explain the gap between the economy
and how voters feel. Now, many Americans say they
feel sour about the economy because of their long-term
financial security and some report feeling fragile and vulnerable to wide ranging
social and political threats. Something experts call referred pain. – There's war in Europe. There's war in the Middle East. Covid threw everybody for a loop, and inflation was unpredictable. And amid all of this, we
have a presidential campaign with two leaders that many
people find uninspiring. It's the sense that this
country that used to be able to put a man on the moon can't
tie its shoelaces anymore.
– [Narrator] But the good news for Biden is that while Sentiment around
the economy is still low, it's starting to trend upward, seeing most clearly in the
beginning of this year. And that could be a big deal. Remember this chart? For most of these years, when
Consumer Sentiment was near a cyclical peak, these
moments, the incumbent won. But in 2012, that pattern
ended and a new one emerged. Obama won reelection before
that peak in Sentiment, but the trend was moving upward. And when Trump lost his reelection, Sentiment had posted
declines prior to the vote. Experts say this trend
upward is a good sign for an incumbent, even if that is yet to show up in Biden's polling numbers. – And Joe Biden as very low marks. The question becomes, will
opinions of Joe Biden's handling of the economy continue to approve and will that lift him in
his reelection campaign? – [Narrator] And because the
2024 election is a rematch of two presidents, there's more
than just economics at play.
Both candidates have track
records voters can point to. – The more people feel
better about the economy, the more their attention
starts turning to other things. – [Narrator] So even if feelings
toward the economy improve, Biden and Trump will still
need to convince voters that they're the best option
for a variety of reasons. (ominous music).