Frustration over bills, inflation could shape 2024 presidential election

More often than not, I'm asking economists about things like the Federal Reserve, the jobless rate and the outlook for auto sales. Typically, I'm not bringing up second-hand conversations with hairdressers.

But lately, such conversations can matter when you consider whether, somehow, Vice President Kamala Harris might be able to put 10,000 miles between her and the shocking 40-year high for inflation that hit in June 2022.

It turns out, everyday conversations can tell you a great deal about economic angst and why some people think the U.S. economy stinks. The economy is lousy, you say, even when the U.S. unemployment rate was a mere 4.1% in June?

Today's jobless rate is down drastically from the COVID-19 pandemic-related high of 14.8% in April 2020 and it's fairly close to pre-pandemic levels. The U.S. jobless rate was 3.5% in February 2020 before the pandemic.

No matter, some are still saying we're in a recession even when the economy is growing.

What some hair stylists are saying

My husband spoke to a hair stylist who had to be convinced on Monday that we aren’t in a recession. She cuts men's hair in Birmingham of all places where I'd imagine things should be pretty good. My husband attributed some of her feelings to the fact that the stylist told him she receives a lot of her information from controversial, far-right pundit Candace Owens.

Yet, I highlighted a summary of the conversation when asking economists why some people think we're in a recession when we're not. I wrote earlier this year about the so-called "vibecession" where many consumers just get bad feelings or vibes about the U.S. economy. Even going back to last fall, economists were asking: "Why do consumers feel so down when the economy seems so strong?"

Oddly enough, University of Michigan economist Don Grimes told me that he heard his hairdresser in Florida make comments similar to those my husband heard this past week.

His hairdresser Whitney, Grimes said, told him many clients are stretching out the time between their appointments. Someone who typically might have visited a salon every five weeks or six weeks is now maybe delaying until seven weeks or so. As a result, the consumers are cutting the number of haircuts they get per year, maybe from 10 each year to eight.

"A little shaggy austerity to the customer but a 20% decline in business to the stylist, which would qualify as recession for them," Grimes said.

Some hair stylists, small business owners and others who interact with budget-strapped consumers, Grimes said, could be confusing a "little bit of spending austerity with a recession."

It's important to remember, Grimes said, that even though the COVID-19 pandemic temporarily cost jobs, real after-tax personal income per person went up a lot — 6% in 2020 and an additional 3% in 2021 as aggressive stimulus programs rolled out of Washington.

"The 2020 recession was the strangest one we have ever had," Grimes said. "It cost millions of jobs, but real income went up. That has never happened in other recessions."

In 2022, as the stimulus programs ended and inflation accelerated, Grimes said, real or inflation-adjusted, after-tax income per person declined 6.2%.

Without stimulus cash, consumers felt even more squeezed by higher prices.

"We gave up a lot of the income gain in 2022," he said. Later, consumers enjoyed a real after-tax income gain in 2023, but weak, and maybe declining, real after-tax income in 2024.

"It will take a couple more years to get back to where we were in 2021, with all that government stimulus money," Grimes said.

No recession declared

The National Bureau of Economic Research — which is the official source for declaring the beginning and the end of economic cycles in the United States — has not declared a recession in 2024, 2023, 2022 or 2021. The most recent recession, which lasted just two months, began in February 2020.

The last recession was short, thanks to aggressive stimulus spending under the Trump administration and then the Biden administration. Many economists say the aggressive stimulus, coupled with supply chain disruptions and shortages, contributed to inflation but saved the economy.

The last time many people had to endure any real austerity, Grimes said, was during the severe Great Recession, which was triggered by the mortgage crisis and financial meltdown. That recession dragged on for 18 months, beginning in December 2007.

Many millennials and Gen Z workers weren't on the job back then.

"A lot of people are being forced to economize for the first time, or at least the first time in 15 years," Grimes said. "They may be using the term recession to reflect that austerity."

Perception is frequently reality

On Thursday, we learned the U.S. economy expanded at an annual rate of 2.8% in the second quarter, thanks to a boost in consumer spending and other factors, according to an advance estimate for the nation's real gross domestic product released by the U.S. Bureau of Economic Analysis. That's double the 1.4% annual pace of the first quarter.

The economy grew at an annualized rate of 3.4% in the fourth quarter of 2023.

We've seen real GDP grow by 2% or more in seven of the past eight quarters as the U.S. economy continues to lead the developed world in the recovery from the COVID-19 recession, according to PNC chief economist Gus Faucher, who is forecasting continued growth into 2025.

"The economy continues to expand at a solid pace even as inflation is slowing," Faucher wrote Thursday.

Economists look at the numbers like the gross domestic product. Consumers look at their bank accounts, their credit card bills and the long list of receipts that lately block their view of the American Dream.

Perception often is reality, though, in a highly charged presidential election year. Like it or not, inflation is a Biden burden that Harris and the Democrats will carry in 2024.

When the public thinks of President Joe Biden’s economic record, they focus on inflation, wrote Greg Ip, chief economics commentator at the Wall Street Journal. His conclusion was that "deep discontent with inflation" means that Harris — if she becomes the Democratic nominee for president — should focus on challenging what the future would look like under Donald Trump, not highlight the past under Biden.

The economic disconnect between Main Street and Pennsylvania Avenue has long been a political challenge.

Back in 1992, then-President George H. W. Bush fumbled a question from an audience member about how the national debt personally affected him. During a debate with Bill Clinton and Ross Perot, he looked out of touch with the economic problems of everyday people. Most people would never expect Trump to know what it's like to live on a budget, but supporters continue to express confidence that Trump can run things like a business.

We will see how Harris interacts with consumers to let them know she understands why they're so frustrated. She won't be able to ignore inflation or simply say "Hey, it's coming down."

Many people cannot stop talking about the cost of living, such as how much they're paying for groceries, whether they're looking at yet another rent hike, and if they'll make their car payment this month. Retirees — many of whom might have struggled during the Great Recession — now find themselves living on a limited income as prices are going up.

As for my own 2 cents, I'd argue that higher prices alone don't put consumers on edge. Increasingly, we're challenged to try to leave the store without feeling like a sucker.

How smart did you shop to save money? Is the price in the store somehow higher than the online price offered by the same retailer? Did you stuff the correct five select items into your grocery cart to snag that $1 off each one promotion? Did you check the app for another deal?

If you're buying a big ticket item, like a car or truck, did you dig through all the paperwork to make sure you're not being socked with an oddball charge or hidden fee that could have been negotiated?

The Biden-Harris administration has attempted to save consumers some money by cracking down on hidden fees or junk fees. But it hasn't always been successful.

An effort to slam the brakes on questionable car sales tactics, and some hidden costs, has stalled in litigation.

Another move to put an $8 cap on late fees on credit cards — down from a $32 average — hit a roadblock. The U.S. Chamber of Commerce, the American Bankers Association, the Consumer Bankers Association and others pushed back aggressively, sued in federal court in March and got a big break when a federal judge in Texas issued a preliminary injunction to halt the May 14 kickoff. The court’s preliminary injunction puts the rule on hold.

Inflation will be a key word in the presidential election

How one feels about high prices, much like the rest of the economy, is now far more partisan than pocketbook.

If you're a Trump supporter, you're putting the Democrats on defense even when the jobless rate is incredibly low, and inflation has cooled significantly in the last two years.

According to one analysis, many speeches during the Republican National Convention in Milwaukee touched on inflation, even if the main topic focused on something else. "In all, at least 42 speakers out of around 95 over the first three nights of the convention used the word 'inflation' or mentioned high prices, and most speeches devoted at least a sentence to it," wrote Monica Potts, senior politics reporter for 538, now part of ABC News. The 538 website takes its name from the number of electors in the U.S. Electoral College.

Inflation still can boil your blood, even though prices for a basket of goods and services overall fell in June — the first time since the pandemic.

The Consumer Price Index for All Urban Consumers declined month-over-month by 0.1% in June on a seasonally adjusted basis, after being unchanged in May, according to the U.S. Bureau of Labor Statistics. Over the last 12months, the index increased 3% in June.

By contrast, the broad inflation index skyrocketed year-over-year 9.1% in June 2022 — the largest 12-month increase since the 12-month period ending November 1981.

In the past 12 months, gas prices fell 2.5% year-over-year in June; used car and truck prices tumbled 10.1%. New vehicle prices fell 0.9% year-over-year.

Election year or not, inflation has continued to come down, which will enable the Fed to begin cutting interest rates relatively soon.

The Federal Reserve has a previously scheduled meeting on July 30 and July 31, but most economists do not expect the Fed to cut rates that soon.

Instead, it's possible that the Federal Open Market Committee will initiate its first rate cut at its Sept. 17 and Sept. 18 meeting, according to some economists, but it's not a certainty.

Mark Zandi, chief economist for Moody's, said he'd expect the Fed to cut rates by a quarter point in September and another quarter point at the last meeting of 2024, which is scheduled for Dec. 17 and Dec. 18.

Zandi expects four more interest rate cuts in 2025, a quarter point each time. He said the Fed’s 2% inflation target is in "clear view" now.

Perhaps optimistically, Zandi said inflation could become less of a concern by Election Day on Nov. 5, as wage growth remains strong and inflation has moderated significantly.

"People associate the economic sting with the higher prices (they) are paying for groceries, rent and gasoline," Zandi said. "But having said this, people’s view of the world and how things are going are significantly colored by their political prism."

Zandi doesn't expect significant differences between the economic policies of Biden and Harris since Harris is part of the Biden administration. "She and her team have played an active role in formulating economic policy," Zandi said. "Having said this, Harris may frame the administration’s economic policies differently."

Zandi says many of Trump's proposed policies are inflationary, including "higher tariffs, deportation of undocumented immigrants and deficit finance tax cuts." All, Zandi said, "will push up inflation and interest rates, which ultimately mean a weaker economy."

More:Hidden junk fees from businesses can drive up costs. Biden, FTC plan would end it.

Michael Greiner, an assistant professor of management at the Oakland University School of Business Administration, said inflation will remain a tough issue for Democrats. Harris, he said, might be able to take a populist spin by talking about going after antitrust issues or businesses that might be overcharging consumers.

"But I'm not convinced that's the strongest argument out there," Greiner said.

By any number of factors, Greiner said, the U.S. economy is as good, if not better, than the economy that was being touted by Trump during his presidency. Yet, not everyone is seeing it that way.

Much of the conversation is driven by partisanship. Many times, Greiner said, people aren't looking at the economy and deciding how they're going to vote.

They look at their political affiliation, Democrat or a Republican, and judge the performance of the economy based on their political leanings. Republicans, he said, can perceive the economy as bad simply because there is a Democrat in the White House.

The perception gap about the economy — say between the numbers economists are reviewing and the prices people are paying — remains a reality. Polarizing, partisan media outlets, Greiner said, also have been driving the narrative that the economy is bad.

"There is this perception that the economy is bad out there," Greiner said, "when really we're dealing with one of the best economies in the world right now."

Contact personal finance columnist Susan Tompor: stompor@freepress.com. Follow her on X (Twitter) @tompor.