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The White House tries to adjust to changing economy

The administration has faced complicated economic news amid an unusual recovery from a recession

President Biden calls on a reporter during questions on Thursday. Government data released Thursday morning showed the economy contracted slightly in the first quarter. (Demetrius Freeman/The Washington Post)
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When President Biden first took office, the White House was preparing to fight a long economic downturn, sluggish growth and persistent challenges getting Americans back to work.

The economy they’re managing as Biden approaches the midpoint of his term has turned out to be nothing like that.

There’s no sign of a slow economic recovery that mirrored the aftermath of the Great Recession, and the chronic problems following the financial crisis have largely abated: Unemployment has plummeted. Americans have come flooding back to the labor market. The economy is still growing quickly from its low point early in the pandemic, despite Thursday’s report on economic growth.

Instead, the administration has faced a longer list of unusual economic hurdles and curveballs that few of its advisers saw coming — snarled supply chains, an erratic stock market, an international energy crunch and, most recently, commodity shocks resulting from war in Europe. The most obvious and dangerous new challenge has been the fastest price hikes in four decades, as inflation emerged with a force not seen since the 1970s.

Economy shrinks 1.4% in first 3 months of year, raising recession fear

On Thursday, the federal government reported that the nation’s gross domestic product contracted by 1.4 percent in the first quarter of this year. Even conservative economists acknowledged that the measure did not reflect weakness in the broader macroeconomy and was instead a reflection of technical factors. But the news threatened to further complicate the politics of the economy ahead of November’s elections — and it isn’t likely to make it easier for Democrats to persuade voters that everything is running smoothly.

“Everyone down in Washington was on the same page, and it turned out to be the wrong page with the wrong story,” said Chris Rupkey, chief economist at the research firm FWDBONDS LLC. “When Biden came into office, it was still important to provide stimulus for a weak or halting economic recovery. They were looking at one crisis and ended up dealing with another.”

Economists on both sides of the political aisle emphasized that one erratic quarter of growth is fairly typical for a period of economic expansion. In fact, the economy contracted by 1.3 percent in the first quarter of 2014 — which was followed by roughly six years of consecutive growth.

Biden has forcefully defended his administration’s economic stewardship and record. The White House led congressional Democrats in approving a $1.9 trillion stimulus plan last March, then approved a bipartisan infrastructure law that included longer-term upgrades to the nation’s public works. The administration and many economists say that the stimulus — and, to a lesser extent, the infrastructure law — fortified the economy against the many threats that have since emerged, by creating a solid base with high levels of consumer demand, business investment and increasing output.

“The American economy — powered by working families — continues to be resilient in the face of historic challenges,” Biden said in a statement on the economic output figures. “While last quarter’s growth estimate was affected by technical factors, the United States confronts the challenges of covid-19 around the world, Putin’s unprovoked invasion of Ukraine, and global inflation from a position of strength.”

But those challenges have complicated the White House’s attempt to sell the country on their economic record. Broad-based price spikes, which many economists believe were exacerbated by the stimulus, have soured voters on the economy. It did not help matters that the administration’s senior economic officials initially dismissed inflation as “transitory,” a line they were later forced to abandon. By government measures, inflation-adjusted wages have fallen over the last year, meaning that even though wages are going up on paper, tens if not hundreds of millions of American families are getting poorer in what economists call “real terms.”

More recently, a new wave of recession fears, stoked by the war in Ukraine, has cast a further pall on Biden’s promises of an economic recovery. That outcome is at least partially outside the administration’s control and will probably depend primarily on whether the Federal Reserve can cool the economy through higher interest rates without causing a downturn. Some economists blame the administration’s fiscal policy for making the central bank’s job of taming inflation without causing a recession much harder. They say that is in part because the administration misdiagnosed the nature of the crisis and spent too much money in the rescue plan.

Democrats unveil new push to punish oil and gas giants for high prices

“The fundamental misdiagnosis was to think the problem was like the Great Recession — it was never like that, and they never respected the data enough to look and see if that’s what was going on,” said Doug Holtz-Eakin, a former economic adviser to George W. Bush and John McCain, of the White House. “They threw all this money at it and that’s come back to really hurt them — then you throw covid and Ukraine on top of that policy topsy-turviness.”

Most economists agree the economic output figures released Thursday amount to a poor gauge of broader risks. Year over year, the U.S. economy grew 3.6 percent when adjusting for inflation, a healthy number that dwarfs most such comparisons during the Obama administration, said Claudia Sahm, a former Federal Reserve economist.

“These are really good numbers. This is exactly what they needed,” Sahm said. “This is not Biden’s fault. This is Biden’s victory dance. If we’d seen that after the Great Recession, we would have thrown a party.”

Still, it remained unclear if Democrats could sell that explanation to an electorate that will head to the polls in about seven months and decide the fate of the party’s narrow congressional majorities. Sensing an opening, many Republicans ratcheted up their attacks on Biden and his political allies on Thursday, saying they had failed to anticipate the trouble on the horizon.

Sen. Rick Scott (R-Fla.), who chairs the Senate GOP’s campaign committee, castigated Biden for inflation. “It’s just bad policies, it’s foolish Democrat policies …” he said. “What’s going to happen in the election is people are going to look at this and say they’re fed up with what the Democratic policies are doing.”

But Sen. Robert P. Casey Jr. (D-Pa.), who represents a state with a key Senate vote up for grabs, said it was important “to keep it in context of where the economy is overall.” That might not necessarily matter to voters, though. “It’s no question when you have both a majority in both chambers, and a president of the same party, it’s a challenge in any environment, and even more so in an inflationary economy,” Casey said.

Tony Romm contributed to this report.

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