Retreating economy creates new hurdle for Democrats in 2022

The strength of the recovery from the coronavirus recession is fading at a dangerous time for President Biden and Democrats. 

The White House and Democratic lawmakers are facing a growing number of challenges to Biden’s pledge to “build back better” from the depths of the COVID-19 pandemic as the party braces for daunting midterm elections.

A summer resurgence of the virus, snarled supply chains, rising prices and a slower-than-expected recovery in the labor market have prompted economic forecasters to lower their projections for growth this year and next.

The International Monetary Fund (IMF) expects the U.S. economy to have grown 1 percentage point slower this year than they expected in July, according to new projections released Tuesday.

U.S. growth this year is expected to slow to 6 percent, down from the IMF’s July estimate of 7 percent, according to the forecast.

“The global recovery continues but momentum has weakened, hobbled by the pandemic,” wrote IMF chief economist Gita Gopinath.

“Pandemic outbreaks in critical links of global supply chains have resulted in longer than expected supply disruptions, feeding inflation in many countries. Overall, risks to economic prospects have increased and policy trade-offs have become more complex.”

While the IMF expects some of this year’s lost growth to appear in 2022, other economists see a gloomier path for the U.S. ahead.

Economists at Goldman Sachs this week said they expect the U.S. economy to have grown 5.6 percent in 2021 — down 0.1 percentage points from an earlier estimate. They expect 2022 growth to slow to 4 percent in 2022, down from an original estimate of 4.3 percent.

And the Federal Reserve of Atlanta’s estimate of third quarter annualized growth fell to 1.3 percent last week from just above 6 percent on July 28.

While growth is expected to remain well above pre-pandemic levels through 2022, even with the downgrades driven by the COVID-19 delta variant, the dual force of slowing growth and persistently high inflation could be difficult hurdles at a dangerous stretch for Biden’s agenda.

Democrats are racing to find a compromise on Biden’s multitrillion-dollar social services and climate bill that will satisfy progressive lawmakers — who have reluctantly agreed to go below the original $3.5 trillion baseline — and Democratic Sens. Joe Manchin (W.Va.) and Kyrsten Sinema (Ariz.) with their calls for steep cuts. The fate of a separate bipartisan infrastructure bill is tied to the larger Democratic bill, much to the anger of moderate lawmakers from purple districts likely to face serious Republican challenges in 2022.

The White House and Congress will also need to address a looming fiscal cliff in early December, with both government funding and the nation’s ability to borrow money set to lapse on Dec. 3.

Whether Biden can shepherd his plans through Congress will largely be driven by political considerations within the Democratic Party, including the gulf between moderates and progressives and the strategy most likely to help Democrats retain control of Congress.

The uncertainty surrounding the economy, however, could throw a wild card into the mix as Biden attempts to cement a winning message for 2022.

Republicans have sought to blame Biden’s ambitious spending plans and handling of the pandemic on decades-high inflation, hiring troubles and other hurdles in the recovery. While many other wealthy nations have experienced similar issues in their rebounds from the pandemic, GOP lawmakers have tied the speedbumps to Biden with eyes on a congressional majority.

“America’s families are feeling the power of their paycheck shrink day by day. Workers are struggling to find jobs that fit their skills, and businesses are struggling to find willing workers,” said Sen. Mike Lee (R-Utah), vice chairman of the Joint Economic Committee, in a Friday statement after the September jobs report came out.

“Our economy is still recovering. Now is one of the worst times for massive new tax hikes and inflationary spending. Instead, Congress should pursue policies that allow more Americans to get back to work.”

Democrats have countered for months that passing an ambitious infrastructure and social services plan is essential to repair both the damage of the pandemic and long-term structural issues.

Supporters of Biden’s agenda say the recent weakness in the economy exemplifies why Democrats must come together to pass the sweeping budget measure.

“The most recent Jobs Report demonstrated what many economists have been saying all along — that this is a public health crisis first and foremost and the Delta variant stalled the labor market recovery in August and September,” wrote Kate Bahn, interim chief economist and director of labor market policy at the Washington Center for Equitable Growth, in an email.

Job growth has fallen sharply in the past two months, dropping from a gain of 1 million in July to 366,000 in August and 194,000 in September, largely due to surging coronavirus cases. While the unemployment rate dropped 0.4 percentage points to a pandemic low of 4.8 percent, labor force participation for women fell sharply as shuttered schools and other care responsibilities walloped the workforce along gendered lines.

“The features of Build Back Better that center the myriad of caregiving supports that families simultaneously need — like the Child Tax Credit, paid leave, and accessible childcare – acknowledge that care is the backbone of the economy,” wrote Bahn.

“Rebuilding the economy requires families being able to care for themselves and others before they can fully engage in the labor market.”