People are buying less stuff as inflation rages — and it's a terrible sign for Democrats' chances in the midterms
Real disposable income— what people can spend after taxes and inflation— has steeply declined.
- The measure is the "strongest predictor" of midterm results, according to
The first hints of an inflation cooldown have emerged, but it's likely arriving too late to save Democrats' election hopes.
Data published Thursday shows surging prices continuing to eat away at Americans' finances. Real disposable income per capita, which tracks what people can spend after adjusting for inflation and taxes, slid through May to $45,490, according to the Bureau of Economic Analysis. The drop extends the steep decline that started early last year and brings the measure further below the 2021 peak of $57,597.
The drop reflects the grim reality facing most households and, by extension, the Democratic party. The
The fiscal stimulus deployed by the government earlier in the pandemic has largely dried up. At the same time, inflation is running at the fastest pace in 41 years, forcing Americans to pay much more just to maintain their living standards.
Other data suggests the decline in disposable income is the nail in the coffin for the reopening spending spree. Retail sales unexpectedly dipped in May, snapping the rally seen throughout 2022. After vaccine rollouts and the reversal of lockdown measures sparked extraordinarily strong spending, shoppers seem to have finally had enough of soaring prices. They're upset, too; consumer sentiment hasn't been this bad since the University of Michigan started tracking it in the late 1970s.
Real disposable income growth has long been "the strongest predictor of midterm election results," Goldman Sachs analysts led by Jan Hatzius said in a note published Monday, adding the measure even trumps gas prices and overall inflation. Disposable income has fallen more over the past year than in any midterm election year since data collection began in 1959, dragged lower by dwindling stimulus aid and sky-high inflation.
Even if prices start to drop and the
"Voters' views regarding the economy are largely set," the team added. "Policies to incrementally lower inflation ahead of the election, for example, might not have much of an effect on the outcome."
To be sure, the economic backdrop isn't all bad for Democrats' chances. Payroll growth is the second most relevant economic variable for midterm election outcomes, the analysts said. That bodes well for President
Still, most economic indicators signal the GOP will take control of the House, Goldman said. Other measures like gas prices, food inflation, and headline price growth have a long ways to go before returning to sustainable levels. The past year of skyrocketing prices, dwindling optimism, and crumbling finances are set to take their toll on Democrats' influence.
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