Biden’s grade on the economy rises to A-

Yahoo Finance's Rick Newman joins the Live show to discuss President Biden's report card on the economy.

Video Transcript

BRIAN SOZZI: President Biden has an enviable problem, says Yahoo Finance senior columnist Rick Newman. That is the economy under his watch is doing a lot better than voters give him credit for. Rick joins us now. Rick, A-minus. You are a tough grader. I was surprised to see that grade here.

RICK NEWMAN: This is not my opinion, Brian. This is just what the numbers tell us. We established a methodology for grading the economy under President Trump back in 2017. It's now the same methodology applied to President Biden. And he has gone up. It used to be a B-plus grade, and it's now an A-minus. And that is based on a few things.

What we do here is we compare the economy under the current president to the economy under prior presidents at the same point in their first term. And here's how good the underlying economy is. Biden gets the top marks for total employment and for exports and also for real GDP growth per capita. He gets the second best marks for manufacturing employment and stock market performance. And the only place where he's subpar is on average hourly earnings. Again, that's just compared with prior presidents.

Now I know a lot of people are thinking this cannot be true because we have 7% inflation, and this is really eating away at family budgets, which is no doubt a fact. So I think what's going on here is the underlying economy is very good, but something's got to give. Either employment has to drop back in line with what you would expect in a booming economy, or inflation is going to erode these other things in the economy that are going pretty well. And this is really the story for Joe Biden and the Democrats in 2022. Which way is it going to go? And I don't know.

JULIE HYMAN: Yeah, and obviously, it's important because of the midterms, right, and how this election is going to go. And that sort of overwhelming feeling or psychological effect of inflation, that seems to be sort of most paramount in voters' minds, right?

RICK NEWMAN: Yep, I think that's true. I think if inflation is still at around 7% at the time of the midterm elections in November, I think it's going to be a wipeout for Democrats, no matter how good job growth is, no matter how good GDP growth is, because when you think about these statistics that we're relying on and many economists and journalists rely on to give us a picture of the US economy, total employment, it's been great under-- during Biden's first year. But that's not something that Americans feel when they're looking at their bills every week. And what they feel--

JULIE HYMAN: Well, and Rick, can I--

RICK NEWMAN: Go ahead.

JULIE HYMAN: I'm sorry. I just want to interrupt you for one second. Because there is something we should mention here, which is that-- and this is something actually-- full credit, Joe Weisenthal over at Bloomberg wrote about it in his morning note. There seems to have now-- it has now been accepted conventional wisdom that one of the reasons we have inflation is because of the fiscal stimulus.

And yes, there are supply chain issues, but that it's also because of the fiscal stimulus, which is due to Congress and Joe Biden pushing for fiscal stimulus. But is that actually the case? Is there-- can we draw that direct line from the stimulus to inflation? And at least in his note, Joe argued that not necessarily.

RICK NEWMAN: So I think anybody who's looking for a simple story or a simple answer on inflation is going to get the wrong answer. I don't think it's simple. I think it's a bunch of different things. Most of the economic analysis I see say, yes, the fiscal stimulus may have had something to do with it, but that the biggest cause is this big shift that we've been talking about this for months, this big shift in consumption patterns.

So people cannot spend money on services. They have a lot of money saved up. And they're spending it on goods. That's where all the inflation is in the goods sector, including things that people feel every day, such as gasoline and food.

There's a good chance that when we get back to normal, people are going to spend more on travel. They're going to spend more on going out. And they're going to spend less on goods. And so we're going to see that the highest levels of inflation fall back a little bit. Economists have gotten this wrong, however. So, you know, I think no one really knows exactly where this is all coming from. And that's part of the problem. But it's not a simple story.

JULIE HYMAN: Yeah, definitely not. There's one other story that we are watching, and that has to do with stock trading rules for Congress. And it sounds like Nancy Pelosi has now given maybe some support to changing those rules, but there's been a big push in this direction.

RICK NEWMAN: Right, and it seems to be bipartisan, which is the reason that people think maybe there actually will be a ban on trading individual stocks for elected members of Congress. So I think a lot of people can reasonably ask, why now? And I think the why now answer is that Democrats are not getting a lot of traction on other issues. They cannot get their Build Back Better legislation passed. They're squabbling among themselves. And I think they really think they need something to be able to point to for voters at those midterm elections we've been talking about, Julie.

So there are some Republicans in the Senate who say, yeah, we think it would be a good idea to ban stock trading. Kevin McCarthy, the House Minority leader, has said that if Republicans retake the House in the midterm elections, that he will try to pass a ban on stock trading. So suddenly, you've got members of both parties trying to look like they are the virtuous party that wants to take credit for cleaning up Congress. We'll see if this actually happens. I mean, it's complicated. There's some likelihood this could actually happen this year, but watch for snafus.

BRIAN SOZZI: All right, quick plug. You can read Rick's latest column on President Biden on the Yahoo Finance home page. Quick-- always trying to plug your stuff, Rick. It's best in class. Rick Newman, we'll talk to you soon.

RICK NEWMAN: Thank you. See you guys.