Clara Del Villar on May 31, 2022
The economic news for the Biden administration keeps going from bad to worse. It’s now a growing possibility voters will head into the midterms with the economy in or near a recession.
All it takes to declare a recession is two consecutive quarters of negative growth. So far the first quarter is negative at a startling rate of 1.5%, and the second quarter report could be negative with a release in late September. The numbers are a nightmare “September surprise” for Democrats on the eve of the November midterms.
Voters will head to the polls with the realization that the economy is in a recession while feeling the sting of inflation.
It’s a tragic turn of events considering President Joe Biden inherited an economy with GDP growth of 6.9% in the fourth quarter of 2021. The shift has occurred with astonishing speed and is the result of bad policies.
Thursday’s report was the worst since the COVID-19 pandemic economic shutdown began in 2020.
All worries about stagflation — rising prices combined with a slowdown in output — have become reality. And nothing is harder for the government to stop than stagflation. It would have to spend less and allow businesses to produce more — the opposite of normal government behavior.
The consumer is still shopping as demonstrated by their expenditures which rose 2.7%. But that economic activity is accompanied by a 7.8% annual increase in prices. It is doubtful the pace of consumer spending can continue as inflation lingers, hitting more wallets with increasing force.
The Federal Reserve has gone from claiming the inflation would be “transitory” to completely losing control of the plot. Core Personal Consumption Expenditure (PCI) inflation for the quarter — which uses data from suppliers and measures goods and services bought by all U.S. households — was 3.5 times the Fed’s target rate. The Fed is behind the curve and struggling with how to catch up. This problem might not end nicely.
Perhaps if our political leadership as well as the Fed was less concerned about “climate change,” “diversity,” “equity” and other left-wing talking points, they would’ve paid more attention to inflationary impacts that have been building for over a year.
Private inventories and fixed residential investment were worse than originally estimated, a trend that has continued with the latest Census Bureau data for the month of April. This is not a good sign for how things may go for the second quarter.
Inflation is so high that even as businesses are drawing down their inventories, likely because they can’t afford to replace them, the total price of what’s left in those inventories is going up. This trend is hard to stop and devastating to the consumer. No choices of products which are now much more expensive.
In other words, if business inventory prices continue rising even as the real amount of supplies in those inventories continue to shrink, we have a real problem. It’s called an ominous path to stagflation.
Can a recession be far behind if this continues in the months ahead? It’s hard to imagine that without a course correction from the Biden administration on energy and climate change that this unforced error on the economy will be prevented.
We have already had significant wealth destruction in our 401(k), IRAs and savings accounts due to the painful market declines so far in 2022. More than $7 trillion has been wiped out from stock market holdings this year.
Put all this together and don’t be surprised if voters march to the polls this November desperate for a new direction.
Clara Del Villar is Director of Senior Initiatives at FreedomWorks Foundation. She is a former financial executive with senior roles over 25 years in Investment Management, Private Asset Management, and Capital Markets. Currently serving as Board Director at General American Investors Co. (NYSE:GAM)
The views and opinions expressed in this commentary are those of the author and do not reflect the official position of the Daily Caller News Foundation.
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