As voters head to the polls on Super Tuesday, many will be voting with one issue top of mind: the state of the U.S. economy.
A recent CBS News poll found that 65% of Americans remember the economy under former President Donald Trump as being good, compared with 38% giving the current economy under President Joe Biden the same positive assessment.
In fact, almost 6 in 10 voters polled by CBS News described the U.S. economy under Biden as bad, even as economists’ views are much more upbeat due to the nation’s stronger-than-expected GDP and low unemployment. Instead of entering a recession, as many economists had predicted last year, the economy appears to be on track to generate continued growth and more jobs while inflation recedes.
The key to the disconnect could reside in how voters experienced the economy between 2017 to 2019, during the first three years of Trump’s presidency, prior to the pandemic’s upheaval in 2020, compared with the post-pandemic years.
“These are two very different periods from an economic standpoint,” noted Gregory Daco, chief economist at EY. “The 2017-2019 period was the end of the longest business cycle on record — the economy was doing well, the labor market was quite strong. We had the lowest unemployment rate in 50 years, we had an economy growing at a sub-2% rate but still moving forward.”
Overall, he added, “There was essentially a pretty steady state of the economy before the pandemic.”
In other words, the economy prior to the pandemic was chugging along, providing a strong if not stellar environment. But the post-pandemic economy introduced a number of upheavals, including a labor shortage and the highest inflation in 40 years — which has since receded but remains above its pre-pandemic levels.
“There is that sentiment that you are still coming out of a shock,” he added.
To be sure, presidents often get credit when the economy is performing well and are blamed when it tanks, even though there’s a limit to how much influence the commander in chief has over such a complex system. Indeed, the economy’s performance is often tied to boom-and-bust cycles that don’t have much to do with who’s occupying the White House.
Here’s what the data shows about the 2017-2019 economy under Trump versus the 2021-2023 economy under Biden.
Inflation
The major difference between the two periods boils down to inflation, or the upward change in prices for goods and services.
From 2017 to 2019, inflation hovered at about 2% per year – a low enough level where people generally don’t notice changes from day to day. But when COVID-19 shut global supply chains and caused a labor shortage, prices shot up, with inflation hitting a 40-year high of 9.1% in June 2022.
Suddenly, shoppers were reminded of inflation each time they went to the grocery store – an issue that remains a pain point for consumers. Even though inflation has receded, prices aren’t going back to their pre-pandemic levels, and that continues to eat into consumers’ budgets.
“We’re coming out of an environment where inflation has become a key topic, a key issue, a key point of conversation, whereas it wasn’t for most of the three decades that preceded the pandemic,” Daco noted. “It’s gone from a non-issue to an essential issue, and that for me is the key reason people are feeling more downbeat than economic conditions would dictate.”
Consumers value predictability when it comes to prices, something that Federal Reserve Chairman Jerome Powell highlighted when he spoke with CBS News last month.
“I can’t overstate how important it is to restore price stability, by which I mean inflation is low and predictable and people don’t have to think about it in their daily lives,” Powell said. “That’s where we were for 20 years. We want to get back to that.”
Wages
Wages rose at about 3% annually prior to the pandemic, representing solid gains, yet far from the strides of the late 1990s, when workers enjoyed pay bumps of about 5% annually.
But more importantly, wage growth from 2017 to 2019 inched ahead of inflation, providing American workers with more purchasing power.
That flipped in the wake of the pandemic, when wage growth failed to keep up with inflation. Suddenly, workers were losing purchasing power, an issue they encountered on every grocery trip, when they faced sky-high egg prices and more costly basics. With wages trailing inflation, many felt they were losing ground.
The good news for workers: Wages started trending ahead of inflation about a year ago.
GDP
One strength of the post-pandemic period has been better-than-expected gross domestic product, or the economy’s total output of goods and services.
While voters may not notice GDP on a personal level, a growing economy enables companies to expand and hire more workers. Businesses can also afford to pay higher wages when they have more demand for their goods or services.
Importantly, the economy so far has dodged a recession, which many economists had predicted would occur as a result of the Federal Reserve’s flurry of interest rate hikes, which typically cause businesses to pull back on spending, given the higher cost of borrowing.
“Like the Energizer Bunny, the U.S. economy just won’t quit,” Oxford Economics said in a January report on GDP.
Grading the Trump versus Biden economies
Many economists today say the U.S. is showing surprising economic resilience, dodging a recession and continuing to add jobs.
But, Daco noted, the economy is still recovering from the shock of the pandemic. And Americans are also facing other changes, such as higher interest rates — a result of the Federal Reserve’s battle against inflation — which means it’s more expensive now to buy a home, car or make any purchase with debt versus during Trump’s presidency.
The economy under Trump “was an A economy,” Daco said. “It was growing at a steady state.”
The economy now? “It’s a B on track to an A,” he added. “It’s progressing, but we’re not quite there yet.”