Dismissing the dark economic narrative of the Republicans as “doom and despair”, Barack Obama on Friday claimed the US was seeing the most durable recovery of any advanced nation, as long-depressed wage gains finally gain traction.
The president’s intervention ahead of Tuesday’s New Hampshire primaries pointed to hopes among establishment Democrats that the party will be able to capitalise on positive economic momentum by the November election, central to which is falling unemployment and stronger pay after half a decade with average wage growth stuck below 2.5 per cent.
Yet the threat posed by populist candidates such as Donald Trump and socialist Bernie Sanders, who has been leading Hillary Clinton in New Hampshire polling since December, underlines the absence thus far of an establishment-friendly economic feel-good factor. Mrs Clinton herself says families are “working harder and harder, but still not getting ahead”.
The presidential campaign is kicking into high gear just as Wall Street analysts warn of a rising risk of a slowdown or even recession in the US — a view that, if vindicated, would radically alter the political calculus. As things stand, 72 per cent of the electorate feels the economy is in recession, according to the American Values Survey released in November — even though the Great Recession is widely viewed as having ended in mid-2009.
Paula Winterton, a 62-year old grandmother in New Hampshire, said that people in the state were not feeling much benefit from the improvement in the economy. “They feel like it is not getting better,” she said. “There aren’t jobs and the wages are terrible.”
Will Marshall, president of the Progressive Policy Institute, said that once Democratic strategists have moved past the primaries and into the general election they will need to portray a hopeful economic picture to voters — learning from the 2014 midterm elections in which he said the party had failed to capitalise on economic improvements under Obama.
“It is not for a semi-incumbent [like Mrs Clinton] to bemoan how terrible things are. You have to give people a sense of hope that the policies put in place in the last eight years have begun to put the country back on the path of full recovery”.
– Will Marshall, Progressive Policy Institute
“The great issue in this campaign remains the great stagnation — the slow growth trends in this century,” he said. “But it is not for a semi-incumbent [like Mrs Clinton] to bemoan how terrible things are. You have to give people a sense of hope that the policies put in place in the last eight years have begun to put the country back on the path of full recovery.”
Central to the case for optimism is the lowest unemployment in eight years and an acceleration in average hourly earnings which has driven them to their strongest annualised growth rate since the recession in the past six months, at 2.9 per cent.
Earnings have been supported by increases in minimum wages in 14 states that kicked in at the beginning of 2016, affecting more than 4.6m people. The dominant factor, however, is the tightening of the overall labour market as the unemployment rate drops to 4.9 per cent.
Further wage gains may lie ahead. The latest National Federation of Independent Business survey shows the share of companies who plan to lift pay is at the highest since before the recession.
Yet polling suggests Democratic politicians will face an uphill battle in convincing the population that a genuine recovery is taking hold. Pew Research Center numbers released last week show that 49 per cent of voters feel they are failing to keep up with the cost of living, more than the 42 per cent who say they are staying even and 7 per cent saying income is rising faster.
“You have a lot of people who feel like they have been left behind and are angry at the system,” said Carl Tannenbaum, chief economist at Northern Trust.
Some senior investors such as Rick Rieder, chief investment officer of global fixed income at BlackRock, are warning that the US economy may have already seen the best of times and is starting to decelerate.
“Several factors have begun to concern us regarding the ability of the economy to continue at its solid, albeit largely under-appreciated, rate of growth,” including capital flight from China and the risk of a currency devaluation, falling corporate appetite to invest, and a rising cost of debt for companies, he said on Friday.
In this view, the pickup in wages may simply be a delayed impact of gains in the jobs market that are already petering out.
William Galston, a senior fellow at the Brookings think-tank and former adviser to Bill Clinton, said the data over the next six to nine months would be critical, but that as things stand Mrs Clinton could not afford to run a “victory lap” on the economy.
The critical benchmark was not average wages but the experience at the median, where outcomes had been depressed by an unequal distribution of pay and growth, he said. Real median hourly wages fell an annual 0.3 per cent from 2007-14, according to the Economic Policy Institute.
“The experience of wage stagnation is now longstanding and has shaped the public consciousness,” Mr Galston said. “It is going to take more than a modest spike of good news on the wage front to break through the attitudes that have taken a long time to crystallise”.
Sam Fleming in Washington and Demetri Sevastopulo in Concord, New Hampshire
Financial Times February 7, 2016
