The inflation that punishes Biden, in the mecca of consumption | International
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King of Prussia, a small Pennsylvania town of about 22,000 people, has no natural attractions. Neither monuments, museums or historical places that deserve a visit. However, it has about thirty hotels, many of them of a good size. They have grown like mushrooms around the great tourist attraction in the area: a gigantic shopping center to which consumers make a pilgrimage through the four highways that converge at that crossroads. Hotels are emptier than usual, according to an employee. It is not high shopping season yet, but in addition, gasoline is more expensive and fewer people are encouraged to travel long distances to go shopping. The rises in prices, of energy and food, mainly, are already weighing down consumption. And, incidentally, the expectations of the Democrats before the legislative elections on November 8.
The King of Prussia shopping center is in fact better known than the town with which it shares its unique name, which was initially a roadside tavern, a day’s ride from Philadelphia, and as a tribute to King Frederick II the Great. of Prussia, who lent his support to the cause of independence from the United States. One day is not enough to visit the mall if you come wanting to shop. The universe of consumption meets in more than 450 establishments that occupy a total of about 270,000 square meters. Fashion stores (from Primark to Ralph Lauren, passing through H&M, Gap or Zara), luxury (Jimmy Choo, Louis Vuitton, Gucci, Tiffany’s, Bulgari, Cartier), department stores (Bloomingdale’s, Macy’s), decoration, home, furniture, sports… Even a Tesla dealer appears in its corridors. There are also dozens of restaurants. In the immediate vicinity, a multitude of other stores, supermarkets and hypermarkets of Costco and Walmart, the giants of food distribution. There are several gas stations within walking distance of the shopping center. Practically, the entire universe of American consumption.
The mall was not too crowded this Thursday, although the aisles became livelier as the afternoon progressed. “When it gets crowded it’s on Saturdays,” said the clerk of one of the establishments. Although it is beginning to show some signs of weakness, consumption has so far resisted with surprising strength, thanks to the savings accumulated during the pandemic and the strength of the labor market.
That is another of the paradoxes of the American economy. The unemployment rate is 3.5%, which equals the lowest level in 50 years. Signs offering work can be seen in numerous King of Prussia stores. It is estimated that there are twice as many offers available as there are unemployed. The president of the United States, Joe Biden, tries to show it off: “We have created 10 million jobs. Unemployment is at the second lowest rate in the entire history of the United States,” he said this Thursday at a fundraising event in Philadelphia, about a 40-minute drive from King of Prussia.
More hot dogs; less tuna
The truth, however, is that this does not pay off. Unemployment, in reality, has simply returned to its pre-pandemic level. Inflation, however, was an almost forgotten problem for Americans. In the last 30 years, the average had been slightly above 2%. Until the current crisis. To overcome the pandemic, the Federal Reserve and the Biden administration flooded the economy with liquidity and demand soared while supply continued to be mired by supply chain problems and the coronavirus hangover. Those problems were accentuated by the war in Ukraine due to its impact on oil, food and other raw materials, and prices are rising at the fastest rate in four decades. Inflation touched 9.1% in June and refuses to go down. In September, the latest data prior to the elections, it stood at 8.2%.
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“Everything is expensive, but you have to keep eating,” a woman smiled as she left the King of Prussia Walmart with her children on Thursday. The shopping basket itself, that is, the food to be consumed at home, has become more expensive by 13% in the last 12 months, according to the United States Bureau of Labor Statistics. This includes stronger increases in basic products such as eggs (30.5%), milk (15.2%), chicken (17.2%), rice and pasta (15.9%) or margarine. (44%). “Consumers are buying more hot dogs, canned tuna or chicken,” Walmart’s chief financial officer said recently, pointing to the shift to cheaper products.
Gasoline, despite the respite in the last three months, is still up 18% year-on-year. And apart from the shopping cart and the pump, the bills that arrive at home are increasingly higher: electricity rises 15.5% and gas, 33%.
Compared to that, the 5.5% increase in clothing, the flagship product of the King of Prussia mall, is not much. Sales and discounts have contained prices. For the sector, the problem is another. As consumers spend more on food, they have less for other purchases. Companies had miscalculated and found themselves with a lot of stock that they couldn’t sell.
The Federal Reserve is trying to contain inflation with the most aggressive interest rate hikes since the 1980s. Its chairman, Jerome Powell, has said it will take “some pain for families and businesses” to do so, and he is also willing to provoke a recession if necessary. Monetary tightening and the prospect of an economic slowdown have punished the Stock Market, in which tens of millions of Americans invest, directly or indirectly.
The rate increases have been transferred with special force to mortgages, which are already around 7% for 30-year loans, according to Freddie Mac. With that, home sales plummet; this same Thursday, the association of real estate agents of Pennsylvania indicated that in the State they fall 16% year-on-year. “Rising interest rates and other product inflation have affected what many homebuyers can now afford,” said its chairman, Christopher Beadling.
The main public concern
In polls, the economy in general, and inflation in particular, invariably appears as the main problem, far behind immigration, abortion, crime, firearms or the risks to democracy. In the most recent of New York Times / Siena, the economy in general is the biggest problem for 26% of likely voters and inflation for 18%. Abortion and immigration are singled out by 5%. In Gallup’s, 38% cite economic problems, 22% see the Government as a problem and immigration is the third concern, with 6%. And according to the CBS News/YouGov poll, 65% of voters believe the economy is getting worse, with the majority pointing to Biden as responsible.
“The economy, stupid” is the phrase that James Carville, Bill Clinton’s strategist, used as the axis of the 1992 presidential campaign to defeat George Bush Sr. The Republicans are convinced that it is the one that will give them victory in the legislative elections on November 8. They draw blood with price gouging at every debate and rally, trying to hold Biden accountable and tie Democratic candidates to him.
The president baptized the Inflation Reduction Law a law that did not serve for that, of course in the short and medium term, but that has at least given him some political ammunition. He has also staged a confrontation with the directors of the oil companies to lower gasoline prices, while he has announced that he will continue to put more strategic oil reserves on the market. He hasn’t been much use to her.
At least the slowdown in the labor market and the likely recession have been delayed. Aside from Saturdays, Thanksgiving weekend (with Black Friday) and the weeks leading up to Christmas are the times when King of Prussia is packed. Those dates will be the litmus test this year of where consumption and the US economy are going. But that will be after the elections.
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