Still no recession in sight, but inflation raises voter anxiety

<a href="https://www.governor.virginia.gov/about" target="_blank">Gov. Glenn Youngkin</a> attached a message to tax rebate checks that began arriving in Virginians' mailboxes two weeks before Tuesday's elections that will determine party control of the state legislature.

Youngkin, a Republican who has made $5 billion in tax cuts the center of his political agenda in his first two years as governor, reminded taxpayers - and potential voters - that he signed the budget bill that directed rebates of $200 each for individual taxpayers and $400 for couples filing jointly.

The governor did not mention that the rebate mechanism was not his idea, but instead was the alternative the Democratic-controlled Senate advocated to $1 billion in ongoing tax cuts for corporations and high earners that it said would have prevented larger investments in public education, health care and other priorities.

"I'm not surprised," said Senate Finance Co-Chair <a href="https://apps.senate.virginia.gov/Senator/memberpage.php?id=S71" target="_blank">George Barker</a>, D-Fairfax, who helped negotiate the budget deal in late August with House Appropriations Chairman <a href="https://virginiageneralassembly.gov/house/members/members.php?id=H0206" target="_blank">Barry Knight</a>, R-Virginia Beach.

Youngkin hopes the rebates will prompt voters to support Republicans in hard-fought General Assembly races that generally have not focused on the economy, with the threat of recession appearing to recede, employment and wages rising, and the rate of inflation falling but still a concern for voters.

"Voters trust Governor Youngkin's handling of the economy," said Zack Roday, spokesman for the governor's Spirit of Virginia political action committee, which has raised more than $15.5 million since March 1 to help finance the GOP push for legislative control. "They trust Virginia Republicans on the economy more than the Democrats."

Democrats have their own economic message in key political races in the Richmond suburbs, Northern Virginia and Hampton Roads - they want to lower the cost of prescription drugs, health care and child care while raising wages for workers.

"Across Virginia, candidates are running on winning kitchen table issues like lowering the cost of prescription drugs and standing up to corporate special interests," said Rhena Hicks, executive director of Freedom Virginia, which has poured almost $2.7 million into the campaigns of Democrats in key Senate and House districts. "Economic issues are on the ballot, and voters can clearly choose between candidates who will put hard-working families first and those who will put big corporations first."

One ad, run by Clean Virginia on behalf of Del. Schuyler VanValkenburg, D-Henrico, in his Senate race against Sen. Siobhan Dunnavant, R-Henrico, showcases his support for "lower energy bills, cleaner air and ensuring that big energy monopolies don't hurt your family."

The ad is aimed at Dominion Energy, the state's largest electric utility, but it also taps into voter anxiety about the cost of living, said Chris Saxman, a former Republican delegate who runs Virginia FREE, a statewide business organization that closely monitors Virginia politics.

"They wouldn't run the ad if they weren't seeing some sort of weakness," Saxman contended.

<h3>Shutdown uncertainty</h3>

At the same time, Democrats are trying to exploit economic uncertainty surrounding a potential federal government shutdown later this month, which a conservative Republican faction in the U.S. House of Representatives has threatened unless they win significant cuts in spending in the stalemate over the federal budget.

"A government shutdown is a state and local issue," said Joel Griffin, a Democrat in a <a href="https://www.vpap.org/offices/state-senate-27/district" target="_blank">three-way Senate race</a> in a Stafford, Spotsylvania and Fredericksburg political district with a high concentration of federal workers, military and government contractors.

Del. Tara Durant, R-Stafford, a Youngkin ally and Griffin's Republican opponent, said she also does not want a government shutdown. She has campaigned partly on voters getting "financial security" in response to higher taxes and prices for such essentials as food and gasoline.

Sen. Scott Surovell, D-Fairfax, who is overseeing the Democratic effort to maintain or widen the party's four-seat edge in the Senate, acknowledged public anxiety about inflation, but he does not see it as a decisive factor in elections on Tuesday.

"Concern about the economy does register in the polling, but it also shows that this isn't the issue that's moving voters at the moment," said Surovell, vice chairman of the Senate Democratic Caucus.

That's also the view of Mark Rozell, a political scientist and dean of the Schar School of Policy and Government at George Mason University in Northern Virginia.

"The state of the economy is clearly taking a back seat in terms of candidates' emphasis in these election campaigns," Rozell said.

<h3>Social, cultural issues</h3>

Instead, Democrats are talking mostly about protecting the right to abortion, as well as greater funding of public education, while Republicans are talking about public safety against crime and greater parental control over what their children learn and read in school.

"It seems that social and cultural issues are playing a very big part," Rozell said.

Inflation remains a concern but not at the level of a year ago, when Republicans were pushing for a "red wave" to take over Congress. The rate of inflation peaked at 9.1% in June 2022, compared with the same month a year earlier, as the economy struggled with snarled supply chains during the COVID-19 pandemic and relied on a massive infusion of federal spending to weather the public health emergency.

Republicans narrowly took control of the U.S. House and failed to win a majority in the Senate, in part because of aggressive action by the Federal Reserve Board to slow the rate of inflation, as well as political reaction to the decision by the U.S. Supreme Court to reverse a 50-year-old doctrine under Roe v. Wade to protect the right to abortion. The ruling moved the abortion battle to states, with Virginia the last remaining Southern state not to impose significant new restrictions on the procedure.

<h3>Inflation, mortgages</h3>

Since then, the Fed's steady increase of interest rates has lowered the rate of inflation to 3.7% in September, compared with September 2022, prompting the board last week to hold off on increasing interest rates for the second consecutive month.

Higher interest rates have made borrowing and home mortgages more expensive, but housing prices have remained fairly steady because "there's still market demand out there," said Terry Clower, an economist at George Mason and director of its Center for Regional Analysis.

The national economy has shown little sign of slowing down, with a 4.9% increase in gross domestic product in the last quarter and an increase of 336,000 jobs in September. Both measurements shocked economists, renewing stock market speculation that the Fed could raise rates again in the future to cool down the economy to further lower consumer demand and prices.

<h3>Recession risk drops</h3>

But the chance of a recession in Virginia's economy has gone down, said Knight, the Republican chairman of the House Appropriations Committee, who keeps a close eye on economic conditions that could affect state budget revenues.

"The economy is still rolling along, and it's beat every projection," he said. "We thought we were going to be in a recession a year ago. I don't see a recession coming."

Secretary of Finance Steve Cummings, in an appearance before the Senate Finance & Appropriations Committee last month, called the economic outlook "somewhere between a soft landing and a mild recession."

That does not make people's fears go away, even though "consumer spending is lightning hot," said Alice Louise Kassens, an economics professor and senior analyst at the Roanoke College Institute for Public Policy and Opinion Research.

The institute reported in late August that consumer confidence had declined, despite rising from a year earlier.

"Virginians express frustration with high prices despite slowing inflation, rising wages and strong labor markets," the institute said.

Kassens said in an interview that the survey is "about how you feel, which is a different kind of measurement."

<h3>Food and fuel prices</h3>

It reflects concern over food and fuel prices, which consumers see daily, she said. The steady decline in the rate of inflation does not register as much with consumers because it does not show that prices themselves have come down.

"All this means is that the growth rate of prices has slowed," Kassens said. "It doesn't mean that they are cheaper now."

Clower, at George Mason, sees "real economic headwinds for consumers" because of vanishing savings from the pandemic, the resumption of payments on student loans and rising credit card bills.

He expects families to tighten their budgets "when the Christmas bills come due in January."

The price of gasoline has come down from a record high 16 months ago. Last Monday, the average price of regular unleaded gasoline in Virginia was $3.29 a gallon, or 6% lower than a year earlier, according to AAA Mid-Atlantic. In the Richmond area, the average price was $3.20 a gallon, down by more than 8% from a year ago, with some stations in Chesterfield County selling it for an average price under $3 a gallon.

The previous Friday, AAA spokesman Morgan Dean said he "filled up at a Sheetz on Genito Road" for $2.98 a gallon.

Still, Saxman, at Virginia FREE, predicted, "Until food prices come down, you're not going to be able to convince anybody that things are getting better."

What do these lingering concerns mean for elections on Tuesday? Democrats hope not much, especially with ongoing battles over funding the government in Washington.

"Voters right now are probably more focused on what's happening in D.C. than they are in Richmond," said Barker, the Fairfax Democrat who lost his reelection bid to a progressive challenger in June.

Knight, his budget counterpart in the House, thinks Virginia's 2.7% unemployment rate and expanding workforce bode well for the state's finances.

"My old saying is, 'Put everybody to work and the rest of your problems go away,'" he said.

Michael Martz (804) 649-6964<!--p:BC TAG Body Copy Tagline-->[email protected]<!--p:BC TAG Body Copy Tagline-->