Good news on the economy?

Plus, is this the year a 3rd party candidate makes a difference?

I’m Isaac Saul, and this is Tangle: an independent, nonpartisan, subscriber-supported politics newsletter that summarizes the best arguments from across the political spectrum on the news of the day — then “my take.”

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Today's read: 10 minutes.

Apologies.

Yesterday, a chunk of Tangle readers got our newsletter a few hours late due to some technical updates on our end. It's possible that the issue persists through the week, meaning not everyone will get the newsletter right at 12 pm ET, though the issue should resolve itself over the next day or two. You can always check www.readtangle.com, where all our latest newsletters are published as articles. Our archive is here.

Quick hits.

1. Shortly after midnight, Republicans on the House Homeland Security Committee approved two articles of impeachment against Homeland Security Secretary Alejandro Mayorkas. The vote now goes to the full House. (The vote)
2. UPS announced it is cutting 12,000 jobs after reporting a 7% drop in total shipping volume in Q4. (The cuts)
3. Hamas is said to be considering a three-phase ceasefire deal in Gaza in exchange for releasing most of the remaining hostages. The deal does not include an Israeli withdrawal from the territory. (The negotiations)
4. An Illinois state board voted 8-0 to keep Donald Trump on its primary ballot, turning down an eligibility challenge under the insurrection clause of the 14th Amendment by saying it did not have jurisdiction to make a decision. (The vote)
5. Russia and Ukraine exchanged 195 prisoners of war, according to the Russian Defense Ministry. (The swap)

Today's topic.

The latest economic news. In the fourth quarter of 2023, the U.S. economy grew much more rapidly than expected while inflation continued to slow. The Commerce Department said the U.S. has avoided the recession many forecasters thought was inevitable, and in 2023 the economy grew faster than any other advanced economy in the world.

Gross Domestic Product, a measure of all the goods and services a country produces, increased in the U.S. at a 3.3% annualized rate last quarter. Wall Street analysts had estimated it would grow by 2% in the final three months of the year. Meanwhile, unemployment and jobless claims remain low, while wages are growing across sectors. Over both of the last two quarters, the core Personal Consumption Expenditures Price Index has come in at exactly the Federal Reserve’s target of 2% year-over-year inflation.

"Whichever way you slice it, this report caps a year of stellar economic growth performance, particularly with the backdrop of the Fed's aggressive monetary policy tightening cycle," Olu Sonola, head of U.S. regional economics at Fitch Ratings in New York, said. "The momentum of economic growth going into 2024 is looking very good."

Then on Tuesday, the International Monetary Fund upgraded its forecast for global economic growth based on positive signals from the U.S. and China. The IMF cited a faster-than-expected easing of inflation in the United States, and posited that the so-called "soft landing" — an easing of inflation without a major recession — was in sight.

"The global economy continues to display remarkable resilience, with inflation declining steadily and growth holding up. The chance of a 'soft landing' has increased," IMF's chief economist, Pierre-Olivier Gourinchas said. "We are very far from a global recession scenario."

In tandem with the latest news, economic sentiment has begun to rise. According to the Consumer Sentiment Index measured by the University of Michigan, Americans are viewing the economy more optimistically than they have since 2021. The number of job openings rose slightly to 9.03 million in December, a sign employers are still looking to hire despite news about layoffs. The latest economic news comes at a pivotal moment for President Joe Biden, who consistently polls behind Republican challenger and former President Donald Trump on the economy. 

Today, we're going to break down some arguments from the right and left about the latest numbers and the economic mood of the country. Then my take.

What the right is saying.

• The right largely dismisses the notion that the economy is benefitting the average American and criticize the media’s framing of the latest economic numbers.
• Some concede that the economy is on the right track but question whether Biden’s economic policies will keep it there. 
• Others say that out of control government spending is disguising a bleak economic outlook. 

In The Washington Examiner, J.T. Young argued “Biden and Bidenomics are out of touch.”

“What President Joe Biden fails to see about the economy is where most people live. The administration continues to insist on lauding an economy that is squeezing America’s workers. By touting decidedly mediocre past growth and hoping for future growth from lower interest rates, the White House has lost sight of the present: the squeeze of higher prices and higher interest rates,” Young said. “Working-class people know there are multiple problems with the administration’s talking points.”

“The Biden administration doesn’t understand inflation and its debilitating effects. Inflation numbers are a measure of past price growth. If prices go from a base of, let’s say, $100 to $120, that’s a 20% price increase. A slower inflation rate after this fact has no effect on the price rises that have already taken place. The previous price spikes are embedded — slower current growth does not wipe those away,” Young wrote. “America is rightfully aggrieved at Bidenomics. The administration only adds insult to injury when it lectures the public on an economy that Biden bureaucrats aren’t living in.”

The Wall Street Journal editorial board wrote about “America’s remarkably resilient economy.”

“Thursday’s fourth-quarter GDP report no doubt elated the White House and Federal Reserve. The economy grew at a solid 3.3% clip last quarter and 3.1% over the past year while inflation is now nearing the central bank’s 2% target. The question is whether—and for how long—consumers and government can sustain the expansion,” the board said. “Maybe the best news in the report is that the personal consumption expenditures (PCE) price index—the Fed’s preferred inflation gauge—rose by only 1.7% in the fourth quarter, down from 2.6% in the third.”

“A buoyant labor market and rising real wages (at long last) are also boosting purchasing power while Americans continue to spend down their pandemic savings. Consumer spending continues to drive GDP growth,” the board wrote. “It’s a testament to America’s economic resilience that the economy keeps chugging despite a regulatory fusillade. President Biden has a growing economy, but can he keep it?”

In PJ Media, Catherine Salgado said “the economy isn’t growing. The government is just adding debt.”

“The media and Biden administration are trying to fool you with propaganda about economic growth. The reality is that the economy is in crisis and the only ‘growth’ is government spending — that is, government debt,” Salgado wrote. “Did the fourth quarter Gross Domestic Product (GDP) 2023 report actually show wonderful economic growth? Not when put in context. You see, all that ‘growth’ is really government spending (taxpayer) money it doesn’t have. Every $1 of GDP growth cost taxpayers $1.69 in new debt. To observe that sort of ‘growth’ isn’t sustainable is a massive understatement.”

“The Q4 increase in public U.S. debt was $834 billion, or an estimated 154% more than the GDP increase. Future American taxpayers will have to pay $957,100.48 for every new job we created!,” Salgado said. “The GDP report wasn’t good news; it was awful. Unless there are some serious reforms — and, unfortunately, both Republicans and Democrats seem uninterested in reigning in government spending — we could be headed for a collapse of historic proportions.”

What the left is saying.

• The left is heartened by the latest numbers and thinks the tide of poor economic sentiment is finally beginning to turn.
• Some say the prospect of slashing interest rates will be tempting but advise a cautious approach from the Fed. 
• Others note that even strong economic numbers aren’t driving an improvement in Biden’s approval rating. 

In The New York Times, Paul Krugman explored whether “the vibecession [is] finally coming to an end.”

“Inflation has come down really fast over the past year. For technical reasons related to the way it treats housing, the Consumer Price Index is a lagging indicator; other measures suggest that we’re already close to the Federal Reserve’s target inflation rate of 2 percent,” Krugman said. “Yes, the economy remains riddled with inequality and injustice. But it’s looking a lot better, with real wages rising and inequality falling.”

“Suddenly, Americans are sounding more positive about the economy,” Krugman added. “From a political point of view, what this means is that overall consumer sentiment is being held down largely by people who would never consider voting for Biden in any case. What matters are the perceptions of persuadable voters and Democrats who might have stayed home in the face of a bad economy. And these perceptions are almost surely moving in Biden’s direction.”

Bloomberg’s editorial board said “the only questions are when and how much” the Fed will cut interest rates.

“Caution would be wise. A hoped-for soft landing is increasingly plausible, but this won’t make the Fed’s job any easier. At their meeting this week, the central bank’s policymakers need to weigh risks and uncertainties that could still upend expectations,” the board wrote. “It’s too soon to declare victory. The combination of tight money and steady consumer demand, along with very low unemployment and falling inflation, is indeed welcome — yet at the same time puzzling. Last year’s forecasts stand refuted left and right, which argues for humility in predicting where things go from here.”

“The case for lower rates ought to turn on the outlook for demand, not just on progress to date in curbing higher prices. It’s likely that demand will in fact subside in coming months, thanks to high borrowing costs, subdued growth in real disposable income and diminished savings. The Fed is aware of this prospect and — given the delay before changes in interest rates affect the economy — will wish to relax policy in anticipation. Unfortunately, if it anticipates too eagerly, and demand does not subside as expected, an overstimulated economy might, even now, overturn the central bank’s apparent victory over inflation.”

In Vox, Eric Levitz suggested “a booming economy might not save the Biden campaign.”

“This improvement in Americans’ subjective sense of the economy coincided with fresh objective testaments to its strength. In recent weeks, gas prices have fallen, retail sales have surged, and the stock market has reached a new all-time high,” Levitz said. “And yet, over the same period, Joe Biden’s approval rating has barely budged. On November 29, Americans disapproved of the president’s job performance by a 15.9 percent margin, according to FiveThirtyEight’s polling average. Two months of surging consumer sentiment later, Biden’s approval is now underwater by … 16.9 percent.”

“For Democrats fretting over such grim data points, there has been consolation in the thought that an improving economy would eventually redound to the incumbent president’s benefit. And this remains a plausible source of optimism. After all, public opinion can lag behind economic performance,” Levitz wrote. “Yet the fact that Biden’s approval rating fell as the economic outlook brightened in 2023 — and has remained near historic lows, even as Americans have come to recognize the economy’s virtues — raises the possibility that an election year boom won’t ensure his reelection.”

My take.

Reminder: "My take" is a section where I give myself space to share my own personal opinion. If you have feedback, criticism, or compliments, don't unsubscribe. Write in by replying to this email, or leave a comment.

• If you compare the numbers to where we were two years ago, the economy looks great.
• But if you compare them to 2019, things look worse.
• The economy looks like it may keep improving, which would be good news for Biden’s campaign, and great news for all of us.

For the Biden campaign, after multiple years of poor economic sentiment, the light at the end of the tunnel is growing brighter. Consider the following picture: The University of Michigan's Survey of Consumers, which indexes consumer sentiment, had a reading of 78.8 for January, its highest since July of 2021. That's a 21.4% increase from last January, and the index’s three-month rolling average increased by 5.0% since December, its largest monthly increase since 1991.

That jump in sentiment comes at a time when inflation is steadying, gas prices have fallen about 39 cents from a year ago, and the stock market is growing steadily. The S&P 500 is now near a record high, which is good for everyone from retail investors to retirees. GDP growth indicates we are (for now) avoiding a recession, which is great news for workers and even better news for media coverage of President Biden’s economy. As it has been for the past two years, unemployment is under 4%. Labor participation is high, and trending up.

Simply put, the U.S. has been out-performing every other major economy since the pandemic, and by nearly all traditional metrics is now doing well. I’m no economist, but in a political context, this is great news for the incumbent.

For the last year or so, the confusing thing has been contrasting these healthy traditional indicators with lukewarm forecasts and ice-cold sentiment. I've made the very unoriginal point that consumer sentiment tends to lag behind the data, and that appears once again to be proving true. Consumer sentiment is bouncing up now that we've had a few consecutive months of fading inflation and continued wage growth. That is what we'd expect.

There are some other good signs, too. Our media ecosystem isn’t built to amplify positive news, but consider this: 77% of Americans are happy with where they are living, a number that includes renters (despite the fact housing costs have surged in the last few years). 63% of Americans rate their current financial situation as "good," including 19% who say it’s very good. Future outlooks are strong, too: 85% of Americans think they can change their personal financial situation for the better in 2024, and 66% think 2024 will be better than 2023.

And those are numbers from mid-December, which means we can expect them to improve.

Of course, that's the rosy picture. But it's not all rosy. 

Inflation has a long tail and many working class Americans are still feeling its impact. The deficit is huge, and as Catherine Salgado wrote (under “What the right is saying”), there are legitimate concerns that strong GDP numbers are just the product of high government spending, a reality that isn't sustainable. The low unemployment and high labor participation rates we mentioned are both still under their pre-Covid levels. As for that near-80 point consumer sentiment, its three-month average is still at 69.9. Under Trump, its lowest pre-Covid reading was 95.1, and its lowest level of his term was 74.1 — during Covid. Gas prices are down from a year ago, but well up from pre-Covid times. Inflation is receding, but it hasn't gone away. The Fed looks ready to cut interest rates this year, but only following the several hikes it made over the last two years, which have jacked up the price of home ownership.

On the one hand, the economy is still not where it was pre-Covid, and that’s bad news for Biden. Most Americans remember life before the pandemic, and most are still feeling the impacts of the huge price surges from throughout 2022 and the interest rate hikes that followed. Good economic news compared to two years ago comes with some major asterisks.

On the other hand, if the economic outlook keeps improving, this could be good news for Biden. Consumer sentiment is already ticking up and will probably keep going. The continued dissipation of inflation, especially with interest rate cuts and a growing stock market, could be a recipe for some very strong consumer sentiment right before election season. That, paired with an official declaration of the much coveted "soft landing," is the future Biden's campaign is hoping for (and, frankly, a future everyone should be hoping for).

A lot of readers were frustrated with my writing a couple weeks ago when I answered a series of reader questions about what "good" Biden has done for the country. His presidency has had plenty of issues (the biggest one is probably the situation on the border, which we covered yesterday), and inflation hampered him for his first couple of years. But given the current economic data and consumer sentiment numbers, combined with the simple reality of where we are compared to the rest of the world post-Covid, the economy might not be one of those weaknesses anymore.

If — and it's a big if — things keep trending the way they are, a strong economy could be a political lifeboat for this administration at a time when the seas are as rough as they've ever been.

Your questions, answered.

Q: In my view, the only 'good' that could potentially come out of Biden v. Trump, Round 2.0 is a viable 3rd party that takes off as a result of people just being 'over it'. Obviously a third party has no shot at winning in the near term, but is this the type of perfect storm that could propel something like this to happen? What else would have to happen? I acknowledge the up-hill battle, but how many more election cycles can we go through where both parties offer the American electorate the option to vote for, "the lesser of two evils"?

— G from Knoxville, Tennessee

Tangle: I think another political party sounds great. I am pro-election reform, pro-open primaries, pro-more choices, and pro- pretty much anything that gets more people to participate in our democratic system (and less of a reliance on our current duopoly). I think getting more political parties with real support can be a part of that — it’s not the only way forward, but if it’s the way we get there then I’m all for it. 

However, I worry people don’t want a third party because their ideologies aren’t reflected by our parties or candidates, but because they don’t like the leading candidates of the major parties. And I think that because everyone writing in asking for more parties complains about Biden-Trump.

What would the platform of this “third party” be? And who would be its candidate? If polling is any indication, the most attractive alternative candidate is the anti-establishment populism of RFK Jr., who is consistently polling at around 8%. 

But I don’t think 8% is enough to make for “perfect storm” conditions for third-party relevance, even if it does swing the race. And I don’t know what other political ideology can do better. I find it tough to answer the many questions I get about the No Labels movement and party because I have no idea what they stand for, other than “we aren’t Democrats or Republicans.” 

The biggest parties outside the duopoly have for years been the Libertarian Party and the Green Party. For years they’ve offered different candidates, and for years very few people have voted for them. And if you want a new major political party, that’s not even the bad news. This is: We’re actually in a really bad environment for those parties to get more support. Instead of a perfect storm, it’s more like clear sailing. The massive dislike for Trump or Biden from either side is so high that fewer people are willing to do anything but vote against the guy from the other party. Green Party membership has flatlined since Trump took office, and the Libertarian membership that surged with his candidacy in 2016 is crashing back to earth.

Maybe the right party doesn’t come before the right candidate does. Maybe the right candidate shows up and the party is formed afterwards. And maybe that person is RFK Jr., whose candidacy we covered last year by saying his message will resonate with millions of people and who continues to have a noticeable impact on the polls. I personally have a hard time imagining RFK Jr. ever succeeding as a mainstream candidate, but if you’re looking for a person who can grow genuine enthusiasm in a formidable new political party, then it’s possible he’s the right guy. 

But I’ll say it again: I don’t think now is the right time.

Want to have a question answered in the newsletter? You can reply to this email (it goes straight to my inbox) or fill out this form.

Under the radar.

On February 6, Nevada will hold a GOP primary with only one serious candidate on the ballot: Nikki Haley. Two days later, the Republican party will host a GOP caucus in which voters can express their support for only one serious candidate: Donald Trump. But when it’s time to assign delegates, only the results of the caucus are going to count, guaranteeing that Trump wins the Nevada GOP primary. This bizarre scenario is the result of a dispute among state GOP officials over the lack of a voter ID requirement in the primary and a desire to ensure Trump earns the state's delegates in the caucus. Nikki Haley's supporters are now accusing the GOP of rigging the race. Politico has the story.

Numbers.

• 1.0%. GDP growth for the U.S. economy in Q4 of 2015.
• 45%. President Obama’s approval rating in December 2015. 
• 2.1%. GDP growth in Q4 of 2019.
• 45%. President Trump’s approval rating in December 2019.
• 3.3%. GDP growth for the U.S. economy in Q4 of 2023.
• 39%. President Biden’s approval rating at the end of December 2023. 
• 75%. The percentage of Americans who said they were very concerned about the price of food and consumer goods in January 2023, according to Pew Research.
• 72%. The percentage of Americans who say they are very concerned about the price of food and consumer goods in January 2024.
• 60%. The percentage of Americans who said they were very concerned about the cost of housing in January 2023.
• 64%. The percentage of Americans who say they are very concerned about the cost of housing in January 2024.

The extras.

• One year ago today we covered Adam Schiff and Eric Swalwell’s removal.
• The most clicked link in yesterday’s newsletter was the investigation into Cori Bush for misuse of government funds.
• Lone star state of mind: 1,012 readers responded to our poll asking who they side with in the standoff between the federal government and the state of Texas in the current border dispute with 33% agreeing with Texas. 22% leaned towards Texas, 5% did not side with either, 15% leaned towards the federal government, 24% agreed with the federal government. “Rule of law is dependent on enforcing the law,” one respondent said.
• Nothing to do with politics: The winners of Minnesota’s snowplow naming competition were announced.
• Take the poll. We’re going to replicate Michigan’s Consumer Sentiment Index with our readers. What do you think about the economy? Let us know!

Have a nice day.

Ken Preuss was catching up with an old friend in his hometown of Oviedo, Florida. His friend suggested they stop in at a familiar local restaurant that Ken used to pass every day, but had never eaten in. During the meal, another diner greeted Ken by name and handed him a folder with loose papers in it. That diner was Craig Wheeler — his mother had been Ken’s English teacher, and the folder contained an assignment Ken had completed in 1982. Ken took the opportunity to reminisce gratefully with her son about his favorite teacher, and The Washington Post has his story.

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