Apple, Amazon and private investment are going gangbusters - but expensive gasoline, unaffordable housing and stubborn inflation could still punish Republicans in November.
The American economy is sending two very different messages as the midterm elections approach.
The first is coming from corporate earnings reports, investment figures and the underlying components of economic growth.
It is surprisingly encouraging.
The second is delivered through mortgage calculators, grocery receipts and the enormous signs outside gas stations.
It is considerably less so.
The productive economy looks strong. The household economy looks strained.
The latest GDP report appeared disappointing at first glance. Economic growth slowed to an annual rate of 1.5 percent in the second quarter, down from 2.1 percent in the first. Yet the weakness came partly from declining federal spending and reduced inventories. Real final sales to private domestic purchasers — a better measure of underlying consumer and business demand — grew at a robust 3.9 percent rate.
That is not what an economy sliding into recession ordinarily looks like.
Apple and Amazon reinforced the point Thursday. Apple reported a 22 percent increase in iPhone sales, along with sharply higher Mac revenue. Amazon’s quarterly revenue surpassed $200 billion, while Amazon Web Services expanded 37 percent, its fastest growth in 18 quarters. The acceleration in cloud computing suggests that businesses are not merely talking about artificial intelligence. They are buying the computing power needed to use it.
The United States appears to be experiencing a genuine private-sector investment boom. Companies are building data centers, designing chips, buying software and expanding cloud capacity. Consumer spending rose at a 2.1 percent rate during the second quarter after barely growing during the first.
This is good news for the next six months. It suggests that the weak GDP headline may represent a temporary slowdown rather than the beginning of a contraction. American companies remain profitable, innovative and globally competitive. Businesses are still investing, and consumers have not stopped spending.
Unfortunately for Republicans, voters do not experience the economy through Amazon Web Services.
They experience it through the cost of living.
Headline PCE inflation is still running at 3.7 percent, while core inflation stands at 3.3 percent — well above the Federal Reserve’s 2 percent goal. Meanwhile, the personal saving rate has fallen to 2.7 percent, down from 4.5 percent in January. Americans are continuing to spend, but some are maintaining that spending by saving less.
Housing is even more politically dangerous. The average 30-year mortgage rate has climbed to 6.66 percent, its highest level in a year — a very bad omen. Combined with home prices that remain elevated, that rate has made buying a house unaffordable for many young families. Existing homeowners with 3 percent mortgages are reluctant to move, first-time buyers cannot enter the market, and renters cannot see a realistic path out.
Then there is gasoline.
The national average is now above $4 a gallon. Maryland’s average is approximately $4.17, while the District of Columbia is around $4.24; in parts of the Washington region, drivers are encountering prices approaching $4.50.
Gasoline occupies an outsized place in voters’ economic thinking for good reason. Petroleum moves commuters, delivery vans, farm equipment, airplanes and the trucks carrying almost everything Americans purchase. Higher fuel prices work their way through the economy, raising the cost of food, construction, travel and ordinary consumer goods.
Republicans should remember 2022. Regular gasoline reached a national record of $5.01 per gallon that June. By Election Day, prices had fallen considerably, but inflation remained central to the campaign. About half of voters said inflation significantly influenced their vote, and roughly eight in ten described the economy as being in poor condition.
Democrats nevertheless avoided the enormous defeat many analysts expected. They lost the House by only nine seats, producing a 222–213 Republican majority, while retaining control of the Senate. That history should encourage Republicans and warn them at the same time. High inflation does not guarantee a wave election, especially when voters have strong feelings about other issues. But it can cost the incumbent party enough marginal districts to surrender a narrow majority.
The present Republican House advantage is already thin. Small economic changes can therefore have large political consequences.
Republicans are not doomed. The economy’s underlying foundation is stronger than the gloomy headline suggests. Continued investment could support productivity, wages and employment through the autumn.
If Middle East tensions ease, oil prices decline and inflation resumes its downward movement, voters may enter November feeling that the worst pressure is passing. Republicans could then plausibly argue that they reduced government spending without pushing the private economy into recession.
But they cannot campaign on Apple’s revenue while ignoring the family unable to buy a home. They cannot point to artificial-intelligence investment while motorists watch $70 disappear into their gas tanks. Nor can they assume that a strong stock market will outweigh depleted savings and expensive credit.
The next six months may continue to produce a stronger economy. The political question is whether they produce a more affordable life.
Republicans do not need every voter to feel prosperous by November. They do need enough voters to believe the country is moving unmistakably in the right direction.
Corporate America is already sending that signal.
The household economy has not yet received it.
(Contributing writer, Brooke Bell)