One thing is going right for President Biden. The job market remains hot, with businesses hiring just about anybody they can find. Employers added 678,000 jobs in February, far more than economists expected. The February report was uniformly solid, with gains in nearly every sector. Upward revisions to job growth in the two prior months show that the surge of the Omicron COVID variant had little to no effect on hiring.
This may not benefit Biden at all, politically. Americans are now overwhelmingly worried about inflation, which is likely to get worse in coming weeks on account of Russia’s invasion of Ukraine and its impact on oil and gas prices. Oil prices have risen by $25 per barrel since the Russian invasion began on Feb. 24, and by $36 per barrel since the start of the year. That flows directly into gas prices, which are up about 50 cents per gallon to a national average of $3.84. Average prices seem likely to top $4 soon and could eclipse the all-time high of $4.11, from 2008.
There might be a little more tolerance than usual for spiking gas prices, given widespread sympathy for Ukrainians enduring a savage invasion. The willingness to bear higher energy costs, in a way, is the average consumer’s contribution to the sanctions the United States and many allied nations have slapped on Russia. Those sanctions don’t include energy, but prices have soared anyway because of fears Russian energy supplies could be disrupted and new difficulties Russia is having shipping oil and gas due to sanctions on its financial system.
But soaring gas prices are perilous for Biden, anyway, for three reasons. First, while Biden is earning high marks for unifying allies in support of Ukraine, he has not prepared Americans for any kind of sacrifice. In fact, he has said repeatedly that he’s trying to protect the U.S. economy from rising prices, given that inflation was running at 7.5% before the Russian invasion. Gas prices are rising anyway, and drivers are getting mad.
Second, many voters associate Biden’s push for green energy with rising gas prices, even if the connection is tenuous, at best. Voters mistakenly think Biden’s cancellation of the Keystone XL pipeline, which would have run from Canada to Nebraska, removed oil from the market and pushed prices up, when in reality it wasn’t even built or operational. Some think Biden has reined in drilling, when in fact permits for drilling on public land under Biden so far have gone up. By demonizing fossil fuels and pushing for renewables, Biden has made it seem like he’s happy to drive oil out of the market, no matter how much it costs consumers. That’s not what he’s actually doing, but it’ll now be tough persuading skeptics otherwise.
Rising gas prices are also about the most tangible economic indicator there is, given that everybody sees the price of gas and forks over an extra $10 or $20 per fill-up. A strong job market or low unemployment rate don’t show up directly in the family budget. Rising costs do, especially for a staple such as gasoline, which most people have to buy. Job growth could be four times stronger or 10 times stronger, and it still wouldn’t overcome the gas-price shock.
With average gas prices heading rapidly toward $4 per gallon, overall inflation could hit 10% within a couple of months. Inflation hasn’t yet hindered job or economic growth, but if it gets much higher and stays there for a while, it will. Wage growth, at 5.1%, isn’t keeping up with inflation, which erodes purchasing power. Consumers have been spending freely, drawing down savings they built up while stuck at home during the worst of the COVID pandemic. But that spending boom could be winding down.
“The boom seen in 2021 risks going bust in 2022,” Patrick O’Hare of Briefing.com wrote in a March 4 market analysis.
The Federal Reserve has clearly signaled it plans to start raising interest rates in mid-March, as an antidote to inflation. Fed Chair Jay Powell has also acknowledged the Fed should have moved sooner. So if the Fed does manage to corral the problem, it would come later than desired and at a higher cost to consumers than necessary.
Biden says he has his own plan for cutting prices—but it would require Congress to act. In his March 1 State of the Union speech, Biden said he wants Congress to pass a law cutting prescription drug prices, subsidizing green energy, and covering child care costs for millions of families. This is part of his “build a better America” plan, the new and improved version of “build back better.” Congressional Democrats, however, continue to bicker about what to prioritize and who to blame if they can’t get anything done. For voters, that’s not a problem. They’ll blame Biden, whether he deserves it, or not.
Rick Newman is a columnist and author of four books, including “Rebounders: How Winners Pivot from Setback to Success.” Follow him on Twitter: @rickjnewman. You can also send confidential tips.