Republicans and independents together comprise more than 70% of the American voting public, and their view of US economic conditions plunged to new record lows in August as inflation ground higher. That’s already provoked a revolt in the Democratic Party against White House spending plans, and sets the stage for a Republican landslide in the 2022 Congressional elections.
The University of Michigan breaks down its widely-followed survey of consumer sentiment by political affiliation, and the August reading for Republicans – at just 50% – is the lowest since the survey began half a century ago. The sentiment of independents came in at 66, the lowest since the Great Recession. Notably, Democrats showed more optimism, but their gauge fell from 107 in April to just 92 in August.
For the overall consumer sentiment index, a reading close to 60 corresponds to the depths of previous recessions in 1980 and 2008.
For big-ticket consumer items like shelter and cars, price hikes are the worst on record. The average rent on a new apartment jumped 10.3% year-on-year according to Real Page Inc, a multi-family property manager, and renters signing a new lease paid an average of 17% more than the previous tenant. With occupancy at a record 96.9%, the rental market has no capacity to spare.
The US government’s Consumer Price Index reports a year-on-year increase of just 2% for rent of primary residence as of July, compared with more than 12%, according to apartmentlist.com, a leading rental website.
Part of the huge discrepancy stems from the lag in renewing leases at higher rents. As leases are renewed, rent inflation will grind relentlessly higher – and shelter comprises about 40% of the total Consumer Price Index. Contrary to less-than-credible pronouncements of Federal Reserve Chairman Jerome Powell, there is nothing “transitory” about this sort of inflation. On the contrary, the explosion in rental costs promises a persistent increase over the next two years.
With major auto companies cutting production due to the global shortage of computer chips, auto prices will rise at least 10% annually. That’s after a 20% year-on-year increase in used car wholesale prices in August, according to the industry-standard Manheim Index.
The Cleveland Federal Reserve uses high-frequency data to “Nowcast” the inflation rate a quarter ahead, and its estimate puts the Consumer Price Index at a 7% annualized rate of increase during the third quarter.
American workers are seeing pay increases of about 4% per year, according to the Atlanta Federal Reserve’s wage tracker, which means that they are losing ground in real terms.
Prices for manufactured goods are rising at the fastest rate since the Great Inflation of the 1970s, according to the Philadelphia Federal Reserve’s widely-followed monthly survey. Of the survey’s respondents, 80% report higher prices for inputs, the highest level since 1979, and prices for finished goods are rising as well.
For twenty years, US imports from China helped reduce the cost of finished goods in the United States, but US import prices from China began rising in 2020. Earlier this week China reported producer-price inflation of nearly 10%, which implies future price hikes for Chinese goods sold in the US. America now imports $600 billion a year of finished goods from China, equal to about a quarter of US manufacturing GDP.
Inflation is the reason for West Virginia Democrat Joe Manchin’s defection from the Democrats’ paper-thin majority on the Senate. “An overheating economy has imposed a costly ‘inflation tax’ on every middle- and working-class American,” Manchin wrote in a Sept. 3 opinion piece for the Wall Street Journal, explaining his grounds for opposing Biden’s proposed $3.5 trillion stimulus.
“I, for one, won’t support a $3.5 trillion bill, or anywhere near that level of additional spending, without greater clarity about why Congress chooses to ignore the serious effects inflation and debt have on existing government programs,” Manchin added.