A key indicator of the financial health of Americans has declined steadily for the last 14 months, in yet another ominous sign from the economy that Democrats will face tough midterm elections, Matt writes.

• Government data out yesterday shows real per capita disposable income — the money consumers can spend after accounting for taxes and inflation — is dropping sharply.

Why it matters: Pollsters, political scientists and economists consider this measure of the household buying power to be, perhaps, the single best economic predictor of election results. Rising real incomes tend to predict rising vote share for the president's party during the midterm elections, and vice versa.

By the numbers: Real — meaning inflation-adjusted — per capita disposable income fell to $45,490 in May, down 3.6% from the previous year.

• In fact, since March 2021 — when the last round of stimulus checks artificially puffed personal disposable income to a record high level of nearly $57,000 — real incomes are down 20%.

The big picture: In a recent note attempting to ballpark the outlook for Democrats in the November elections, Goldman Sachs analysts found that "real disposable income is the strongest predictor of election results among the economic variables we consider."

• "It is also particularly relevant in the current election cycle, as elevated inflation and a decline in fiscal transfers have weighed it down compared with a year ago," they wrote, adding that the direction of income data suggests "a large loss" is in store for Democrats in the elections.

Longtime Democratic pollster Mark Mellman said on the political podcast "Hacks on Tap" earlier this year that "people look at all kinds of economic indicators unemployment, GDP, growth. The one that is most important politically that people never look at, is change in real disposable income."

• Mellman added: "That's the most important politically, because it measures the impact of inflation in wage growth and unemployment, all those things into one. It has to do with what people can buy when they reach into their wallet."

Yes, but: This isn't a foolproof predictor of election outcomes. Goldman analysts, for example, note that other key economic indicators — such as the still-low unemployment rate — historically would suggest that the Democrats should fare well.

• But the message being sent by the data on disposable income is largely consistent with noneconomic data that bode ill for the Democrats — such as the president's sagging approval ratings and voter preference for generic Republicans over Democrats in recent polling.

The bottom line: Unless something drastic happens — and the recent Supreme Court decisions and Jan. 6 hearings could qualify — the Democratic party could be up against a whopper of a midterm wave.

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Since 2021, Hispanic and Black Americans experienced slightly higher rates of inflation compared to white or Asian Americans, finds new research from the New York Fed, Emily writes.

Why it matters: The headline inflation number in the Consumer Price Index — which is at a super high 8.6% right now — is an average, and doesn't reveal much about how different households experience rising prices. There are real differences across income groups, or between rural and urban dwellers, for example.

• "Inflation varies depending on your spending habits," as this NYT piece noted in May. Drivers face higher costs because of soaring gas prices. And renters see the cost of housing rise more compared to those with a stable mortgage payment, who now pay less in real terms each month.

There's less information out there about how different racial and ethnic groups experience inflation, however. The NY Fed research is a first step.

Methodology: The CPI doesn't track inflation by demographic group, so the researchers used the Bureau of Labor and Statistics Consumer Expenditure Survey, which tracks spending patterns in different households, by race and ethnicity.

They re-weighted the CPI data based on those patterns, which help explain the differences in inflation rates:

• Broadly speaking, Hispanic Americans spend a bigger chunk of their money on transportation — buying cars and gas. Those categories saw huge price spikes over the past year.
• Meanwhile, Black Americans spend relatively more of their money on housing. With far lower rates of homeownership for Black and Hispanic households, it's perhaps not surprising that housing prices would be a bigger factor.
• Asian and white Americans spend a slightly higher proportion of money on education, which saw lower price increases.

Caveats and to-be-sures: These are averages, and like I said up top — averages obscure differences.

• There is diversity within these groups, too — between say, a Black person living in a city or a rural area.

Read more.

Congratulations, you just lived through the stock market's worst first half since the Nixon administration, Matt writes.

Driving the news: The S&P 500 dropped 20.6% in the first half of 2022, as the Fed launched a tough rate-hiking campaign to counter inflation.

• That's the ugliest first half for stocks since 1970, as a recession was getting underway. (The recession would last until November of that year.)
• This year, of the 11 industrial "sectors" that comprise the S&P 500, just one posted a gain so far. Energy stocks rose 29.2%, on soaring crude oil and gasoline prices.

Yes, but: The carnage in the S&P wasn't as bad as in the tech-heavy Nasdaq, which has fallen 29.5% so far in 2022.

What to watch: Inflation — and whether the Fed ramps up its rate-hiking plans in response to it — will be a major driver of the market's direction for the next few months.

The Supreme Court in a ruling yesterday imposed major constraints on the breadth of the EPA’s authority to limit carbon emissions from power plants, Axios’ Andrew Freedman writes.

Why it matters: The ruling is an opening salvo in what may be a protracted effort by the current Supreme Court to rein in federal regulations — and the SEC’s drive to issue climate risk disclosure requirements could also be in jeopardy.

Case in point: In its comments on the SEC's proposal, Shell stated that its lawyers see a potential "issue" with the rule, related to the “major questions doctrine.”

• That's the belief that federal agencies can't implement major policies without express permission from Congress. And it’s the same doctrine that yesterday’s decision rests on — the term showed up more than two-dozen times in the majority and concurring opinions.

Between the lines: Jonathan Adler, a professor at Case Western Reserve University School of Law, said the fate of the SEC’s proposed rules could depend on how they’re written. The SEC would be on shaky ground if it were to take actions out of step with what it’s historically done, he adds.

• In other words, if the agency bases the disclosure rules on things like risks to companies’ value and performance, then that could pass muster with the current court.
• But if it uses disclosure requirements to push emissions reduction — which some parties may allege — then the court may view that as something Congress didn’t authorize.