The Biden Administration’s Recession Has Arrived. Just Don’t Call It That
July 28, 2022
- GDP declined 0.9% in the second quarter of 2022, which marks two quarters in a row that domestic output has shrunk—the traditional definition of a recession.
- This recession was induced by the big-government socialism and anti-American energy independence policies of the Biden Administration and liberals in Congress.
- The double whammy of a weak economy and 40-year high inflation is particularly hard on lower-income Americans and seniors living on fixed incomes.
- Increased interest rates have now negatively impacted the U.S. housing market.
- Tripling down on its failed socialist agenda will not generate broad-based prosperity for the American people. Enactment of the latest version of the Left’s big government socialism bill that imposes higher taxes, onerous regulation, and excessive government spending is not the solution.
Today’s release of second quarter Gross Domestic Product (GDP) data confirms what the American people have feared for months—the Biden Administration’s recession has arrived. According to this morning’s report, GDP declined 0.9% in the second quarter of 2022, which marks two quarters in a row that domestic output has shrunk—the traditional definition of a recession. Other than the pandemic, it is the worst six months of economic growth in our economy since the financial crisis recession of 2009, and it comes less than a year after the passage of the American Rescue Plan Act that flooded the economy with trillions of dollars in deficit-financed cash while disincentivizing work. Now, Americans need rescuing from the resulting decades-high inflation, recessionary decline, and rising unemployment insurance claims that have brought the U.S. economy to the brink of stagflation.
The current Biden Administration recession is entirely unnecessary and could have easily been avoided with pro-growth, fiscally responsible policies. By contrast, the Biden Administration’s determination to open the spigot of federal spending while simultaneously undercutting the ability of the economy to produce the goods and services that would meet that artificially induced demand has crushed families and businesses. The American people are suffering from rapidly rising prices, the economic uncertainty of promised tax hikes, and the Federal Reserve’s aggressive interest rate policy. The result: a broad-based weakening of economic activity, with large declines in residential investment, falling business fixed investment, and anemic growth in private consumption. Despite the White House’s attempt to redefine the commonly accepted definition of a recession, the American people are suffering from the ongoing slowdown that is entirely the result of failed leadership.
With food price inflation over the last year of 10.4% and energy prices up 41.6%, more and more Americans are having to choose between putting food on the table and having enough gas to get to work. Since wages have not kept up with price increases (real wages have declined 3.6% in the last 12 months), families have had to cut back on other purchases. These impacts are particularly painful for lower-income Americans and seniors living on fixed incomes. Both durable and nondurable goods consumption saw significant declines last quarter.
The aggressive interest rate hikes of the Federal Reserve in response to this four-decade high level of inflation have resulted in average 30-year mortgage rates of over 5.5% compared to under 3% a year ago. As we expected, the housing market has been significantly impacted: According to reporting in Reuters, new home sales declined 17.4% between May 2021 and May 2022, and “sales of previously owned homes fell for a fifth straight month in June.” The GDP data reflects this housing contraction, with residential investment posting a 14% annualized decline.
Likewise, business investment in structures, equipment, and inventories also saw a significant decline. This too was expected since companies generally reduce their investments in growth and capacity when consumers start to pull back and interest rates rise. However, in contrast to what we normally see, energy investment has not been particularly sensitive recently to changes in the price of oil. According to our calculations based on oil prices and oil rig counts, during the Trump Administration, we saw approximately 16 additional oil rigs deployed for every one dollar increase in the price of crude oil prices. Since the beginning of 2021, that coefficient has dropped to just six. Given the Biden Administration’s war on domestic energy production including threats of higher taxes, hostility to federal leasing, multiplying barriers to permitting, and an ongoing all-out regulatory assault on the American energy industry, the sector is not making the kinds of investments that an America First energy policy generated. The result is higher gas prices, lower economic growth, and greater hardship for the American people.
Today’s report confirms that under President Biden, our economy is in decline. Tripling down on its failed socialist agenda will not generate broad-based prosperity for the American people. Enactment of the latest version of the Left’s big government socialism bill that imposes higher taxes, onerous regulation, and excessive government spending is not the solution. Instead, these policies have artificially inflated demand, contracted supply, and resulted in inflation rates unseen in the United States in 40 years. Inflation’s damaging impact is so significant that according to Pew Research, 70% of Americans state that “inflation is a very big problem in the country today,” higher than all other topics in their survey. For the benefit of all Americans, we must return to America First policies that generate outcomes of broadly realized economic growth, energy independence, low inflation, declining poverty, and rising real wages.
Mike Faulkender serves as a Visiting Fellow for the America First Policy Institute (AFPI). Aaron Hedlund serves as AFPI’s Director of Research.
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