Middleboro Review 2: POLITICO NIGHTLY: Next week’s Category 5 economic storm

Friday, July 22, 2022

POLITICO NIGHTLY: Next week’s Category 5 economic storm

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HURRICANE WATCH — Take some time to relax and enjoy this summer weekend. Because there is a Category 5 storm of economic news headed for our shores next week that will (hopefully) help clear up a muddled picture of America’s direction and almost certainly set competing political narratives for the stretch run of the midterm election campaign.

Let’s just start with the checklist of everything we will learn. Because it’s a lot. Consumer confidence numbers (which currently stink) hit on Tuesday. A Federal Reserve meeting and decision on interest rates , coupled with a press conference from Fed Chair Jerome Powell, follows up on Wednesday.

The first reading on second quarter economic growth drops on Thursday. And the latest numbers on our vexing run of historically high consumer price inflation close out the monster run of data on Friday. In a note to clients today, analysts at Deutsche Bank suggested the flood of information will “leave you breathless.”

It’s an econ wonk’s dream week. But it’s also much more than that . We live in a strange post-pandemic economy that is both hot (low unemployment and strong job creation) and cold (limited supplies of goods, super high prices and dismal consumer and business confidence).

What matters now, both politically and economically, is the direction things are headed. Are we tipping toward a significant and painful recession? Or does the recent decline in gas prices portend more relief to come for strapped consumers who have helped turn this into one of the most hated economies in recent history? We should know a lot more about the answers by this time next week.

A gas station in Houston, Texas in early July. | Brandon Bell/Getty Images

The most politically radioactive number comes Thursday with the first look at gross domestic product growth in the second quarter of the year. It will likely show a decline in the size of the economy of around 1 to 2 percent. That will follow a first quarter decline of 1.6 percent. This isn’t a lock. The number could surprise us and come in flat or even marginally higher.

But should it go negative, as most economists expect, Republicans will race to declare that the “Biden Recession” is now officially underway. In fact, they will probably scream it across cable television, social media and campaign ads in every closely contested 2022 contest.

It will not be true. At least not yet.

But President Joe Biden and Democratic candidates across the country will face a daunting and possibly impossible challenge explaining to people why it’s not true.

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Clean Energy is the Way Forward: Investing in renewable energy reduces our reliance on foreign oil and boosts our nation’s energy independence while providing lower, more consistent costs for consumers. Learn more.

And why won’t it be true? It’s a very wonky answer. Typically, two quarters in a row of negative GDP is the key indicator of recession. But it’s not the only one — the people in charge of declaring what is or isn’t a recession, the National Bureau of Economic Research, take many other factors into consideration. And they tend to only declare recessions when they are well underway or already over.

As the White House tried to pre-spin this week , by many factors beyond GDP growth this does not look like an economy in recession at all. Unemployment remains at historical lows, currently sitting at 3.6 percent and 21 states have jobless rates below 3 percent. The economy created 372,000 jobs in June. Job openings remain plentiful. Economies in recession just don’t do this kind of stuff.

First quarter growth got squashed by technical factors on inventory building and trade not worth going into here. But underlying consumer demand — which accounts for the bulk of economic activity — remained strong. All of which brings us to the biggest problem the economy faces: nasty, ugly, painful inflation.

And that brings us to the most important economic event of the week on Wednesday, when the Fed decides how much to hike interest rates to cool off the economy and dial down inflation that hit 9.1 percent in June , a 40-year high. Democrats and progressives want the Fed to tread gently. But Wall Street expects another three quarter point hike (that’s big) with several more half point hikes to come. Such an aggressive war on inflation often ends with at least mild recession . A Fed-induced slowdown probably wouldn’t really hit until after the midterms. But it could arrive just in time for the 2024 presidential campaign kickoff.

As if all this wasn’t enough, we get fresh inflation numbers on Friday morning in the form of the Personal Consumption Expenditure index, which happens to be the Fed’s favorite gauge of prices. The annualized headline number stayed at a very high 6.3 in May . Stripping out noisy food and energy prices, it dipped a little to 4.7 percent from 4.9 percent. But consumer spending (which comes out at the same time) dipped some, which isn’t great.

If inflation shows signs of sticking around or — God help us all — rising even higher in Friday’s numbers for June it will mean the Fed has to stomp the brakes even harder, possibly crushing Democrats’ already slim chances of holding on to full power in Washington next year.

Like we said at the start, take a rest and gird your loins.

Welcome to POLITICO Nightly. Reach out with news, tips and ideas at nightly@politico.com . Or contact tonight’s author at bwhite@politico.com or on Twitter at @morningmoneyben .

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WHAT'D I MISS?

Former White House Senior Strategist Steve Bannon speaks after being found guilty on two charges of contempt. | Tasos Katopodis/Getty Images

— Steve Bannon found guilty for refusing to testify to Jan. 6 panel: Former Trump White House adviser Steve Bannon has been convicted for refusing to testify and provide documents to the House committee investigating the Jan. 6, 2021, attack on the Capitol. Bannon faces up to two years in prison on the misdemeanor charges and has indicated he intends to appeal.

— Biden admin considering a public health emergency for monkeypox: The discussions come as the virus — which is endemic in West and Central Africa but unusual in the United States — continues to spread across the country. As of Thursday, there were 2,593 cases reported, up from 1,470 last week. The federal government announced today it has shipped over 300,000 doses of the vaccine to states and cities to control the outbreak. “We’re looking at … what are the ways the response could be enhanced, if any, by declaring a public health emergency,” White House Covid response coordinator Ashish Jha told reporters during a briefing today .

— FTC turns up the heat on Trump-era defense merger: The Federal Trade Commission is weighing whether to bring legal action against defense giant Northrop Grumman for alleged violations of a 2018 settlement that greenlit its purchase of the rocket, missile and satellite motor manufacturer Orbital ATK. The FTC’s scrutiny of Northrop, which has intensified this year, raises the specter that the agency could seek to toughen the terms of the deal or even sue to unwind the merger.

— Is he running? Newsom attacks red state rival again with Texas newspaper ads calling out Abbott: California Gov. Gavin Newsom has taken out Texas newspaper ads assailing Republican Gov. Greg Abbott in a move certain to spur more chatter about Newsom’s potential presidential ambitions . Newsom went after Abbott in Texas just weeks after doing the same to Florida Gov. Ron DeSantis. While Newsom has steadfastly denied he has any intention to seek the presidency in 2024, the Florida and Texas spots have allowed him to leap into the national conversation for a negligible cost.

— Harris heading to Indiana as state GOP prepares new abortion ban: Vice President Kamala Harris will head to Indianapolis on Monday , as Indiana is poised to become the first state to hold a special legislative session on abortion since the U.S. Supreme Court overturned Roe v. Wade last month. While in state, the Vice President will meet with legislators and abortion rights activists.

STEP INSIDE THE WEST WING: What's really happening in West Wing offices? Find out who's up, who's down, and who really has the president’s ear in our West Wing Playbook newsletter, the insider's guide to the Biden White House and Cabinet. For buzzy nuggets and details that you won't find anywhere else, subscribe today .

AROUND THE WORLD

WE HAVE A DEAL — Russia and Ukraine reached an agreement today with the United Nations and Turkey to reopen Ukraine’s seaports and guarantee safe passage for the ships carrying Ukrainian grain in the Black Sea, writes Camille Gijs .

At a press conference in Istanbul unveiling the deal, U.N. Secretary-General António Guterres said: “This is an agreement for the world. It will bring relief for developing countries on the edge of bankruptcy and the most vulnerable people on the edge of famine. It will help stabilize global food prices which were already at record-levels even before the war.” The agreement was signed today by Ukraine’s infrastructure minister and Russia’s defense minister.

Both signed individual deals with the U.N. and Turkey, not each other. Still, Ukrainian and Western officials remain skeptical that Russia will stick to its side of the bargain .

A message from American Energy Action:

CLEAN ENERGY IS THE WAY FORWARD: Investing in renewable energy doesn’t only reduce our reliance on foreign oil—It provides lower, more consistent costs for consumers and sets our nation on a path toward decarbonization. Learn more.

NIGHTLY NUMBER

The number of people the White House has notified as close contacts of Biden after he tested positive for Covid, White House press secretary Karine Jean-Pierre said during today’s press briefing. So far, none of these contacts have tested positive for the virus. The White House delivered a positive update on the president’s health today, noting Biden is doing “much better” after completing his first round of Paxlovid.

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PARTING WORDS

Donald Trump and Mike Pence campaigning together at a rally in 2019. | Joe Raedle/Getty Images

BAD BREAKUP — David Siders writes a dispatch from Peoria, Ariz:

A room full of establishment-minded Republicans greeted Mike Pence here today , many of them still chilled by the Jan. 6 committee’s revelations the previous evening about how close Pence and his security detail came to catastrophe during the riot at the Capitol in 2021.

They’d heard about the protesters who chanted “Hang Mike Pence!” and, according to committee testimony, then-President Donald Trump’s view that Pence deserved it.

Yet in an air-conditioned warehouse in the Phoenix suburbs, where Pence is engaged in a proxy war with Trump over the result of Arizona’s Aug. 2 gubernatorial primary, Pence didn’t mention any of that — or anything negative about Trump at all. And no one was surprised.

“Wow, what a great day,” Pence said when he stepped on stage.

For several days, today’s Trump-Pence split screen has been built up as not only a major swing state contest with implications for November, but as a test of the direction of the post-Trump GOP and a potential preview of the 2024 presidential primary. In his most overt undercutting of Trump yet in the midterms, Pence was in state to support Karrin Taylor Robson, a traditionalist Republican candidate for governor, while Trump rallied less than 90 miles away with her opponent, former TV anchor and election conspiracy theorist Kari Lake.

Yet what was laid bare more than anything in Arizona was just how hesitant the former vice president remains to break with his one-time patron in word even as he does so in deed.

“I think he needs to walk a tightrope,” Jack Duffy, a Republican precinct committeeman from Globe, said after Pence issued his regular, full-throated praise of the accomplishments of the Trump-Pence administration. “He can’t alienate a large voting group.”

In the post-Trump GOP, Pence still occupies a political no-man’s land — viewed by some moderate Republicans as too tightly tied to Trump, and by Trump supporters as insufficiently loyal to Trump’s cause.