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State of Union:Biden Sees Economic Glow02/04 09:13

   Going into Tuesday's State of the Union address, President Joe Biden sees a 
nation with its future aglow.

   WASHINGTON (AP) -- Going into Tuesday's State of the Union address, 
President Joe Biden sees a nation with its future aglow.

   Republicans take a far bleaker view -- that the country is beset by crushing 
debt and that Biden is largely responsible for inflation. And the GOP now holds 
a House majority intent on blocking the president.

   The harder reality is that the United States is on a tight rope, trying to 
balance efforts to reduce inflation with the need to stay upright and avoid 
falling into a recession. That's with the seemingly inherent contradiction of a 
soaring job market and the unemployment rate at a near 54-year low.

   Based on past speeches, Biden believes the policies adopted under his watch 
can fill the U.S. with new factories and protect against climate change. Roads, 
bridges, sewer systems, ports and internet service would be improved. The 
middle class would be more financially secure. So would America's place in the 
global economy's hierarchy.

   On Friday, the president said the proof was in the January employment 
report. It showed 517,000 jobs were added as the unemployment rate fell to 
3.4%, making it "crystal clear" that his "chorus of critics" were wrong.

   "Here's where we stand: The strongest job growth in history," Biden said. 
"Put simply, I would argue the Biden economic plan is working."

   Republicans are pushing back. They blamed Biden's trillion-dollar plus 
spending for high inflation and surging gas and food prices. GOP lawmakers want 
to repeal his tax increases and additional money for the IRS. They oppose his 
forgiveness of student debt and blame him for the migrants seeking to enter the 
country at the U.S.-Mexico border.

   Neither side captures the fullness of the actual state of the economy.

   One group of experts can read the data and claim a recession is on the 
horizon. A different group can focus on a separate set of figures and see 
reason to rejoice. It's a disorienting moment.

   Biden can celebrate the low jobless rate even as Republicans bemoan 
inflation that is still running dangerously hot.

   "It's the best of times and the worst of times for the U.S. economy, to 
borrow a phrase," said Mark Zandi, chief economist at Moody's Analytics. "The 
economy is full of contradictions as it struggles to get beyond the massive 
global shocks of the pandemic and the Russian invasion of Ukraine."

   Zandi said he expects the U.S. economy will "skirt" a recession this year, 
though many economists believe a downturn will come.

   Gus Faucher, PNC Financial Services' chief economist, pegs the odds of a 
recession this year at 60%. But he said any downturn would be "mild" because 
"worker shortages will limit layoffs, consumer balance sheets are in great 
shape, the banking system is solid."

   Most people in the U.S. assume the nation is already in a recession, even if 
they personally feel fine.

   Only 24% of adults call the national economy good and 76% say conditions are 
poor, according to a poll by The Associated Press-NORC Center for Public 
Affairs Research. At the same time, 57% say their personal financial situation 
is good. That's unchanged since December, but it has eroded slightly since 
earlier last year when 62% felt positively about their finances.

   The key force shaping the economy right now is the Federal Reserve, which 
has the mission of keeping prices stable and inflation at around 2%. Consumer 
prices jumped 6.5% last year.

   To bring down inflation, the Fed has tried to slow down hiring and growth by 
raising its benchmark interest rate over the past year. When Biden delivered 
the State of the Union Address in 2022, the Fed's benchmark rate was 
effectively near-zero. It's now over 4.5%, the fastest increase in four 
decades, and Fed Chairman Jerome Powell said Wednesday that the rate will 
likely go higher.

   "Without price stability, the economy does not work for anyone," Powell told 
reporters after the Fed board's most recent meeting.

   The Fed rate increases mark a major reversal in how the economy operates.

   Ever since the 2008 financial crisis, the U.S. central bank had held its 
benchmark rate near historic lows to bring back growth. That made it easier for 
tech start-ups because cheap money meant investors expected them to focus on 
growth instead of profits. Consumers got use to historically cheap rates for 
mortgages and auto loans.

   The past year's rate jumps produced a sudden whiplash. The stock market 
fell. Prominent tech companies such as Google and Microsoft recently announced 
layoffs. Even as computer chip companies began building new plants and 
crediting Biden's policies, the world economy swung from a dearth of 
semiconductors to a glut. Mortgage rates initially doubled to over 7%, before 
falling back a bit to 6% last week. The big increase meant monthly payments 
became unaffordable for would-be homebuyers, forcing many to stay in rentals.

   Glenn Kelman, CEO of the real estate brokerage Redfin, said the housing 
market is stronger than many people expected. But the years of low rates 
worsened generational inequality. Baby boomers became wealthy as their homes 
increased in value, but then rates jumped at the time when more millennials 
wanted to buy and they found themselves priced out.

   "A generation ago, boomers owned 21% of U.S. wealth," Kelman said. "For 
millennials, that number is 7%. They're still on the outside looking in."

   Carl Tannenbaum, chief economist for Northern Trust, said he is surprised 
that the rate increases have hit housing but not employment. Traditional models 
assumed that efforts to lower inflation would automatically include job losses. 
But when he talks to companies, most are reluctant to fire their workers 
because businesses had trouble finding skilled employees during the pandemic.

   "Because the supply of labor has been so starved for the past two years, 
firms are holding on to who they have," Tannenbaum said. "The prevailing wisdom 
is if we have a recession it's going to be shallow. Firms are going to want to 
be ready to go."

   As much as Biden says his mission is about giving Americans a sense of 
confidence, his challenge might rest with an economy in which few things are 

   When the pandemic hit in 2020, the government aid was so overwhelming that a 
financial market crash turned into a rally. Biden tried to assure the country 
in 2021 that rising prices were a temporary inconvenience, only to find that 
inflation defined how many perceived his first two years as president. The 
expectation was that interest rate increases would ultimately lead to layoffs 
and higher unemployment, but hiring stayed robust in a sign that the economy is 
unmoored from traditional expectations.

   If Biden faces a challenge on the economy, it might just be that no one 
really knows what could happen next.

   "We're in an environment where there is a lot of uncertainty," said Gregory 
Daco, chief economist at EY-Parthenon. "The conflicting signals we keep getting 
on the economy make it very hard to get an accurate pulse."

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