The latest read on Gross Domestic Product (GDP) of 5.2% real growth suggests the US economy soared in the third quarter. As momentum matters, this suggests the next quarter and the next will also be strong. One can hope, but a great downshift is far more likely.
For starters, it’s likely the economy was nowhere near as strong as the headline suggests. GDP gets all the love in the press, but Gross Domestic Income (GDI) is an equally valid measure. If we could measure these things precisely, they would always equate. GDI came in at 1.5%, much lower than GDP’s 5.2%.
Much the same data conflict arises in the jobs figures. According to the press fave employers’ survey, the economy created about 200 thousand jobs monthly since May. But the equally valid household survey has been flat over the same period. Again, that’s a big difference over an extended period between equally valid measures of the labor market.
One measure strong; one weak. Secret sauce clue: When major economic indicators send very different signals, it usually means the economy is at a turning point.
Why now? First, because the American consumer, that great engine representing about two-thirds of GDP, is running low on gas. The hoard of excess saving built up in years past is now mostly gone. LendingClub reports 60% of Americans are living paycheck-to-paycheck, which means they’ve little to fall back on and little room for error or bad luck.
The New York Fed confirms the consumer’s stretched thin, reporting that credit card debt last year displayed “the largest such increase since the beginning of our time series in 1999.” Credit card balances shoot up when savings go down and the checking account’s running dry. The Fed also reports the share of newly delinquent credit card users is the highest in about a decade and on an upward trend.
Going into the pandemic the Fed threw the sink at sustaining the economy, one consequence of which was high inflation. Coming out of the pandemic, the Fed finally woke up to inflation’s gathering momentum. The consequent good news is that inflation is trending downward.
The problem for the American consumer is the damage that inflation has already done. When inflation shot up in 2021 and 2022, nominal wages didn’t. Families took a huge hit in what they could afford and the gap remains. To preserve their standard of living, they resorted to spending down their past savings and spending up their credit card balances.
The natural consequence of stressed consumers is a downshift in spending. The National Retail Federation reports that core retail sales have been essentially flat for two months straight. Retailers report consumers are resisting price increases, hesitating to pay full price, and are increasingly looking for discounts and promotions. The obvious reaction to financial insecurity is to cut back; think cutting out the Rib-Eye at Whole Foods for hamburger from Aldi.
A weakening of consumer spending would occur against a shaky background elsewhere. Housing has been flat or down for two years now. Shipments and new orders both suggest the manufacturing sector is weak. If the consumer really is about out of gas, then the economy could see a marked downshift. And now we come full circle back to the Fed, which put us on this rollercoaster with its kitchen sink response to the pandemic.
The Fed is standing pat with its restrictive policies even as inflation slows and will likely do so for many months. Quite reasonably, before relaxing the Fed wants to be sure inflation continues toward its 2% goal rather than re-igniting. But standing pat while inflation slows means Fed policy is actually becoming steadily more restrictive. Today’s tapping becomes tomorrow’s stomping on the brakes, and thus is likely to generate the great 2024 downshift.
J.D. Foster is a contributor to the Daily Caller News Foundation. He is the former chief economist at the Office of Management and Budget and former chief economist and senior vice president at the U.S. Chamber of Commerce. He now resides in relative freedom in the hills of Idaho.
The state of the United States economy continues to concern experts and Americans alike.
Earlier this week, the latest Consumer Price Index (CPI) from the Bureau of Labor Statistics noted that the American economy had experienced a 3.2% increase in inflation over the past year.
EJ Antoni, a public finance economist for the Heritage Foundation, reacted to the revelation, saying, “October was the fourth consecutive month of inflation outpacing monthly earnings growth. For 27 of the last 31 months, prices have risen faster than annual earnings. This decline in real earnings coupled with elevated borrowing costs from today’s higher interest rates have cost a typical American family the equivalent of about $7,400 in annual income under the Biden administration.”
Bidenomics is at is again. For the fourth consecutive month, inflation has outpaced monthly earnings. For 27 of the last 31 months, prices have risen faster than annual earnings. Current federal spending levels are unsustainable. @RealEJAntoni explains👇 https://t.co/iwoFfC04Q2
A recent poll from Global Strategy Group, which was conducted for the Financial Times and the University of Michigan’s Ross School of Business, showed that 61% of respondents disapproved of the way Biden was handling the economy, while 55% believed that they are worse off since the start of his presidency. The largest concern of the group appeared to be with price increases to food (74%), and 75% believed that rising prices would pose the most significant threat to the American economy over the next six months.
The White House broadcasted a different perspective to the most recent report from the Bureau, stating that the numbers show “more progress bringing inflation down, with annual inflation now down by 65% from the peak.”
Today’s economic report shows more progress bringing inflation down, with annual inflation now down by 65% from the peak.
The Biden-Harris Administration will continue to fight to lower costs for hardworking families so they have more breathing room.
President Biden added, “Inflation has come down while the unemployment rate has been below 4% for 21 months in a row—the longest stretch in more than 50 years—while wages, wealth, and the share of working-age Americans with jobs are all higher now than before the pandemic.”
Daniel Stefanski is a reporter for AZ Free News. You can send him news tips using this link.
On September 19, I testified before a House subcommittee on the impacts of Bidenomics – yet it was clear that half the committee members weren’t even listening. That’s disturbing because our lawmakers have played a huge role in making the typical American family about $7,000 poorer in just two and a half years.
Instead of acknowledging the data I presented, the Democrats on the subcommittee only regurgitated their talking points and resorted to espousing falsehoods about the state of the economy. Even if half our leaders won’t listen to the facts, hopefully the American people will, so here’s the truth about Bidenomics.
Under President Joe Biden, the government has spent, borrowed, and created trillions of dollars, and that caused the highest inflation in four decades. This inflation is a real tax on the American people because it transfers wealth from the people to the government. And the size of that transfer has been staggering.
The average American worker today loses more of his hourly earnings through the hidden tax of inflation than in federal income taxes. That means inflation under Mr. Biden has effectively doubled the average American’s federal income tax liability. Nominal pay keeps going up, but real (inflation-adjusted) pay has gone down.
The typical American family with two parents working and with average weekly earnings has seen their weekly pay increase $230 under Biden, but those larger paychecks buy about $100 less. The result is an annual decrease in purchasing power of about $5,100.
Similarly, net household wealth is at a record high today, but only before adjusting for inflation. In real terms, net household wealth is roughly flat since the end of 2020. That means nearly all the trillions of dollars in additional net household wealth have been confiscated by the government under this president through the hidden tax of inflation.
That’s how the government has been financing its massive deficits for the last three years.
To combat the inflation that it helped cause, the Federal Reserve has increased interest rates which have compounded the pain for Americans. Borrowing costs have risen dramatically and are now about $1,800 higher annually for the typical American family. Coupled with their loss in purchasing power, this leaves a family about $7,000 poorer than when Mr. Biden took office.
Yet many people are even worse off than that. If you’re trying to buy a home today, the monthly mortgage payment on a median price home has more than doubled under Mr. Biden. Homeownership affordability is at one of its lowest levels on record, and less than half of American households can qualify for a mortgage. And many who qualify still can’t afford the payments.
The impact of Bidenomics on federal finances has been just as bad, with interest on the federal debt rising at the fastest pace on record. In less than a decade, interest payments will crowd out more than half of existing government spending.
While the Democrats on the subcommittee refused to listen to any facts I presented, nothing I said was about politics, but policy. President Bill Clinton, a Democrat, signed welfare reform and multiple balanced budgets. And the 12 years of low inflation that preceded Mr. Biden were overseen by both a Republican and a Democrat.
The laws of supply and demand are purely apolitical, with both Democrats and Republicans being subjected to them. The sooner today’s Democrats—and some Republicans—realize this, the sooner they can acknowledge the factual outcomes of Bidenomics and hopefully change course.
But if the conduct of the Democrats on the subcommittee before which I testified is any indication, we shouldn’t hold our breath.
E.J. Antoni is a contributor to The Daily Caller News Foundation, a public finance economist at The Heritage Foundation, and a senior fellow at Committee to Unleash Prosperity.
In boasting about Bidenomics two weeks ago in Milwaukee, President Joe Biden declared that his policies are “restoring the American dream.” Then he went into his creepy whispering mode and assured us “it’s working.”
Huh?
Isn’t a big aspiration of the American dream owning a home? Biden keeps making first-time homeownership harder for young families for two reasons. One is that the overall jump in inflation and the slower increase in wages and salaries means that homes are more expensive. High home prices benefit those who already own their homes, but much of the increased value is due to general inflation, which reached a high of 9% last year and hurts everyone.
A bigger killer for first-time homebuyers has been the steady rise in mortgage rates under Biden. When he came into office, the mortgage rate was 2.9% nationally. Now it is 7.1%, thanks in no small part to the Federal Reserve’s 11 interest rate increases prompted by the $6 trillion Biden spending and borrowing spree in 2021 and 2022.
So now, according to the mortgage company Redfin, just the increase in interest rates on a 30-year mortgage from 5% to 7% means that a middle-income family that could once afford a median-value home of $500,000 can only afford a home worth $429,000. Great, spend more and you get less house. Or instead of a single-family home, you can only afford a three-room condo or a townhouse. If we compare the rates today versus when Donald Trump was president, the typical homebuyer can only afford a house with a price tag more than $100,000 less than three years ago.
What a deal? Maybe this is one reason the size of a new home is smaller than in the past.
Here’s another way to think about the damage done by Biden policies: If you want to buy a $500,000 home today, which is close to the median price in many desirable locations, your total interest payments will be at least $800 more per month. That means over three decades of payments totaling at least $250,000.
Of course, rents are up nearly 20% as well, so for many 20-somethings, this means sleeping in the parents’ basement.
Biden talks a lot about bridging gaps between rich and poor and blacks and whites. But the group that is most handicapped by these interest rate shocks is minorities. Black homeownership is still less than 50% for black households. The Washington Post calls this “heartbreaking,” but they blame racism, not bad government policies.
There’s one other impediment to homeownership for Generation X and millennials. Many 30- and 40-somethings are hamstrung by their existing and expanding debt. Credit card debt is now $1.03 trillion. Half of all families are expected to have problems paying off this debt each month. Delinquencies are rising, which can mean penalty rates of 20% to 25%.
So, if families can’t afford their existing debt, how will they get a bank to approve a $400,000 or more mortgage loan?
An even bigger question is how in the world can Biden call his economic policies a success?
Perhaps Biden has a secret plan to “forgive” trillions of dollars of mortgage debt, as he has already attempted to do with student loans. But that just shifts the debt burden to taxpayers — hardly a solution.
The Biden administration’s assault on homeownership isn’t just harmful to the families that are being priced out of the market. It’s bad for communities and cities around the country. When families become homeowners and set roots in a town, they are much more prone to care about not just improving their own house and maintaining the upkeep and mowing the lawn and trimming the hedges, but it gives them a stake in the schools and children in the neighborhood and the quality of the public services. In other words, homeownership gives Americans a sense of Tocquevillian civic pride.
Crime is lower, neighbors are friendlier and everyone’s property values rise when they live in a community of owners, not renters.
There is one reason to feel today’s downward spiral can be reversed. Back in 1980 when Jimmy Carter was president, mortgage rates weren’t 7%; they reached above 17%. Voters rebelled against the economic mayhem and chased Carter out of office. Ronald Reagan came into the White House, and with wiser economic fiscal policies, mortgage rates quickly fell in half and then lower still. It can happen again.
Stephen Moore is a contributor to The Daily Caller News Foundation, senior fellow at the Heritage Foundation, and chief economist at FreedomWorks. He is the co-author of the “Trumponomics: Inside the America First Plan to Revive Our Economy.”
Inflation is forcing Americans to spend more of their hard-earned dollars over the past two years.
The rate of inflation has become a common refrain the past couple of years. While experts are hopeful that skyrocketing inflation may be a thing of the past, data shows that men and women around the nation continue to dig deeper into their wallets than they did before.
Mark Zandi, the Chief Economist for Moody’s Analytics Economics, recently tweeted that “the high inflation of the past 2+ years has done lots of economic damage. Due to the high inflation, the typical household spent $202 more in a July than they did a year ago to buy the same goods and services. And they spent $709 more than they did 2 years ago.”
To be sure, the high inflation of the past 2+ years has done lots of economic damage. Due to the high inflation, the typical household spent $202 more in a July than they did a year ago to buy the same goods and services. And they spent $709 more than they did 2 years ago.
Even with this analysis, Zandi expressed optimism with the future of inflation and the American economy, writing, “The trend lines look good, and suggest inflation is set to moderate further. Vehicle prices will decline more, so too will electricity prices, and the growth in the cost of housing will slow further.” However, he warned that his “biggest worry is the jump in oil prices, which bears close watching.”
The news about the current state of inflation comes as President Joe Biden heralds the anniversary of the Inflation Reduction Act, which was executed in an attempt to address the runaway inflation that has, at times, crippled certain sectors of the American economy. Biden posted, “One year ago, I signed into law one of the most significant laws ever enacted: the Inflation Reduction Act. Emerging from a deadly pandemic and doubts about America’s future – we delivered. Looking forward, not back. Taking on the special interests and winning.”
One year ago, I signed into law one of the most significant laws ever enacted: the Inflation Reduction Act.
Emerging from a deadly pandemic and doubts about America’s future — we delivered.
Arizona officials also weighed in on the significance of the law’s passage, sharing their perspectives on the progress (or lack thereof) since its execution. Phoenix Mayor Kate Gallego wrote, “Clean-energy jobs, a more secure water supply, and lower utility bills. These are just a few ways the Inflation reduction Act is delivering for Phoenix families since it became law one year ago today.”
Clean-energy jobs, a more secure water supply, and lower utility bills.
These are just a few ways the Inflation Reduction Act is delivering for Phoenix families since it became law one year ago today. Thank you, @SenMarkKelly, for your work to get it across the finish line! pic.twitter.com/ekiNtefi7z
Republican Senator Anthony Kern responded to Gallego, saying, “More left political lies. Has anyone’s electric bills, water bills, gas bills, and food bills been lowered??”
More left political lies.
Has anyone's electric bills, water bills, gas bills, and food bills been lowered??
