President Joe Biden is facing unprecedented pressure from some senior lawmakers to step aside and allow Democrats to choose an alternative candidate to challenge Donald Trump in November's election following his disastrous performance in last week's televised debate.
Biden, who will turn 82 just two weeks after the November vote, has trailed his predecessor in most national polls, as well as in key battleground states, for much of the past year, with many voters citing his advancing age and perceptions of declining mental acuity.
His shaky appearance in last week’s nationally televised debate, as well as his frequent verbal pauses and inaccurate recollections of events, have only heightened concerns that he is not only unlikely to match former President Trump’s energy on the campaign trail, but may not be able to complete a second term if he emerges victorious on Nov. 8.
Indeed, the New York Times reported on Wednesday that Biden is now weighing whether to continue his re-election campaign, and admitted to an unnamed “key ally” that if he fails to turn public opinion around in the coming days, he may resign. The White House denied the claim.
The Times also reported that Trump's lead over Biden in polls of likely voters has widened to about six percentage points, with nearly three-quarters of respondents indicating he is “too old for office.”
Yet even if Biden manages to convince voters that his debate performance was a blip, which he attributed to “fatigue” and a series of back-to-back European diplomatic visits, he could face an even bigger challenge in the fall that a handful of successful television interviews won’t overcome.
Major economic concerns facing President Biden
That's because a key reading of US economic growth turned markedly negative in June, even as inflationary pressures remained stubbornly high heading into the summer months.
At the same time, cracks in the labor market, as well as a contraction in consumer spending, are beginning to raise concerns that the economy could be heading into a recession during the second half of the year.
The Institute for Supply Management's benchmark survey of confidence in the nation's services sector, the biggest driver of U.S. growth, fell to a four-year low in June from a nine-month high in May.
The headline reading, which Wall Street watches closely, came in at 48.8 points, the lowest since May 2020 and well below the 50-point mark that typically signals contraction.
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“The last time the (ISM) reading was as weak as the second quarter of 2024 was in the fourth quarter of 2009, when the economy was just beginning to emerge from the Great Recession,” said Bill Adams, chief economist at Comerica Bank in Dallas.
Readings more focused on new orders and hiring intentions were also in contraction territory, the survey indicated, while a measure of prices paid by businesses (which are then passed on to customers) remained stubbornly high.
Cracks in the labor market indicate a weakening
The Labor Department also reported Thursday that the number of Americans filing for continued unemployment benefits rose to 1.85 million last week, the highest level since November 2021.
Other readings also suggest weakening growth: the Atlanta Fed's GDPNow forecasting tool suggests a 1.5% advance in the second quarter, just ahead of the 1.3% pace recorded during the first three months of the year.
The Federal Reserve, in its years-long struggle to tame inflation following post-Covid rising living costs, has raised its benchmark lending rate to around 5.375%, the highest in more than two decades.
This has had a mixed impact on the economy so far: the labor market recorded its longest period of unemployment below 4% since the late 1960s, but housing affordability has fallen to its lowest levels since 2007.
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Americans are also frustrated by the lack of progress in reducing inflation, particularly regarding food prices, which by some measures have risen more than 20% from pre-pandemic levels.
Federal Reserve Chairman Jerome Powell and his colleagues have repeatedly warned that until they are convinced inflation pressures are easing in a sustained manner, rates will remain high well into the year and beyond.
“Because the U.S. economy is strong and the labor market is strong, we have the ability to take our time and get this right,” Powell said at a central bank forum in Portugal earlier this week.
Questions about the autumn interest rate cut
But even if the economy is not strong and the labor market begins to weaken in the fall, the Fed may not be inclined to cut rates during an election cycle that has placed its decisions squarely in the national economic debate.
It could be extremely difficult for Biden and his fellow Democrats to support this in the final months of the campaign, particularly if growth slows and inflation remains high.
Meanwhile, the reaction in the bond market suggests that investors don’t have much faith in Biden’s ability to win that debate either. Investors have carried out a significant sell-off in US Treasuries in anticipation of a Trump victory, which could bring with it further corporate tax cuts, higher tariffs on imported goods and renewed pressure on the independence of the Federal Reserve.
Of course, both candidates would also have to contend with a rapidly rising level of domestic debt, currently estimated at around $35 trillion, as well as sweeping spending plans that almost all economists consider unsustainable.
More economic analysis:
- Record stock rally may be stalling
- Consumers are giving in to persistent inflation and a slowing job market
- Fed rate cut schedule shifts after retail sales data
Biden can argue that his long-term plans will reduce that figure, without affecting entitlement spending, but a bond market suddenly caught in the middle of presidential politics is unlikely to respond favorably.
And voters, eager for details about how and when their monthly bills will be reduced, are unlikely to pay much attention to debt levels that cannot be satisfied for many decades, if ever.
That leaves the president vulnerable in what was once his strongest suit — the surprising resilience of the U.S. economy — while also trying to assuage concerns that he is too old to fix it.
The Times reports that Biden will spend the next few days reaching out to senior Democratic Party advisers and colleagues to rescue his stalled campaign before making a final decision on his candidacy.
However, any further weakening of the economy or hints of a long-awaited recession from data released in the coming months could have a much bigger impact on its outlook.
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