Joe Biden’s legacy endured a major downgrade in 2024 as the frail president dropped his reelection campaign, leaving his replacement just three months to mount a bid. Donald Trump’s defeat of Vice President Kamala Harris in November underscored voter disgust with the way Biden and Harris have been running the country.
The Biden economy is likely to fare better in the history books.
Americans still feel burned by the elevated prices of the last three years, but there’s been steady progress getting inflation down since it peaked at 9% in 2022. Many Americans don’t appreciate the “soft landing” that seems to be underway, with inflation improving while the overall economy remains robust. Historically, it often takes a recession to whip inflation for good.
The overall inflation rate dropped from 3.1% in January to 2.7% now. Rent inflation dropped from 6.1% to 4.4%. Grocery inflation has been in the 1% range all year. Cars, gasoline, and electronics are actually getting cheaper.
Many Americans rightly point out that big price hikes from 2022 and 2023 are still there, with prices of many staples permanently higher. And from April 2021 to March 2023, prices rose by more than incomes, which means the typical family was falling behind. Voters punished the incumbents for that in this year’s election.
Concerns remain. There are some signs of "reflation" as things such as insurance, medical care, and auto repair tick upward in price. The recent stock market sell-off shook investors out of a Goldilocks mentality.
But there are always wobbles, and improving fundamentals suggest consumers and investors will look past them. Incomes, for instance, have been rising by more than inflation for the last 19 months, which means workers are making up lost ground and getting ahead once again. That wasn’t enough to rescue the incumbent Democrats in 2024. But if the positive trend continues, 2024 will stand out as the year inflation stopped wrecking household budgets.
Job growth remains solid, meanwhile. Employers have added nearly 2 million jobs so far in 2024, and while the pace of job growth is slowing, it’s still strong enough to support decent economic growth. Investors are certainly optimistic. The S&P 500 stock index has surged by 27% this year, even with recent givebacks. The Yahoo Finance Bidenomics Report Card rates the Biden economy an A-, with job gains and GDP growth among the best of all first-term presidents since Jimmy Carter in the 1970s.
Trump won a second term in large part because of voter unhappiness with that pretty good Biden economy. Analysts puzzled all year over dismal consumer attitudes that seemed wildly out of step with declining inflation, low unemployment, record hiring, and enduring growth. Part of the gloom probably comes from long-term declines in the ability of working-class Americans to get ahead.
But there’s also a lag between the gains economists see in the data and living conditions ordinary people feel. Polls consistently showed that voters rated Trump higher on his handling of the economy than either Biden or Harris. But Trump will inherit a Biden economy that, in some ways, is better than the pre-COVID economy Trump oversaw and routinely brags about.
As Trump regularly points out, inflation was much lower during his first term than during Biden’s. But earnings growth was weaker too. During the three years prior to COVID, earnings growth exceeded inflation by an average of just 0.8%. During the last year under Biden, earnings have beaten inflation by 1%, and the latest data shows earnings exceeding inflation by 1.3% in November. That’s the widening gap between the yellow and red lines in the chart above, and it means Americans are now getting ahead at a faster clip than they were during Trump’s first term.
Biden and Trump are already claiming credit for the latest upturns in the economy. In a recent speech, Biden quoted a magazine article saying “Trump is receiving the strongest economy in modern history.” Trump says the Biden economy is terrible and that a “golden age of America” began when he got elected in November.
Neither is correct, because the president has a lot less control over the economy than many people think. If anything, it’s the Federal Reserve that brought down inflation through aggressive interest rate hikes in 2022 and 2023. The Fed began a new, gradual cutting cycle in September, putting new emphasis on keeping employment steady. The Fed let inflation get too high before it moved in 2022, but it does seem to deserve credit for the soft landing, if it holds.
OK to brag about the economy? President Joe Biden in Washington. (REUTERS/Ken Cedeno/File Photo) ·Reuters / Reuters
Trump and many of his supporters seem to expect a dramatic improvement in the economy once he takes office in January, as if there’s a magic dial in the Oval Office that only Trump knows how to turn. Yet many economists think growth under Trump could slow, not accelerate, if he imposes tariffs on imports and deports migrant workers, as he has promised to do. Inflation might even return, since tariffs raise prices directly and getting rid of migrant workers could worsen labor shortages and push labor costs higher.
It will take a year or so to see if the economy shifts into a higher or lower gear under Trump. But it’s cruising steadily now, which could turn out to be a cruel irony for Biden: The economy that got his party bounced from the White House could set Trump up for four years of success.
