The US economy exhibited a robust growth rate of 4.9% in the third quarter, defying earlier predictions of a looming recession by many economists. While this surge is largely attributed to a substantial increase in consumer spending, which rose by 2.69%, a deeper examination prompts us to question whether this growth is merely a temporary anomaly or indicative of a more fundamentally positive trend.
Directing our attention to the cornerstone of the GDP—consumer spending, constituting a significant 68.1%—we uncover crucial insights by comparing key metrics from 2019, pre-pandemic. The analysis reveals a concerning picture: the median income has dropped by 4.7% from $78,250 (2019) to $74,580 (2022), the average 30-year mortgage rate surged from 4.5% (Jan 2019) to 7.8% (Oct 2023), average new car payments increased by 36% since 2019, and the average student debt payment of $203 resumed in October 2023 after a three-year pause. Additionally, credit card debt has surpassed $1 trillion for the first time, while consumer price inflation (CPI) escalated from 1.6% (Jan 2019) to 3.7% (Aug 2023).
These alarming figures paint a starkly different narrative compared to the optimistic GDP numbers. Despite the evident strain on consumer finances over the past four years, the question persists: what’s behind this apparent inconsistency?
A major contributing factor is the substantial influx of money into the system during the Covid era. This infusion, primarily directed towards businesses and assets, coupled with record-low interest rates, has artificially inflated the GDP without addressing the foundational economic health of the nation. Compounding this, evolving consumer spending patterns over the last three years further complicate the economic landscape.
In my assessment, the GDP growth appears to be a transient phenomenon, driven by a lag between cause and effect in the vast US economy. With weakened underlying fundamentals reflected in declining consumer metrics, the nation may confront significant challenges, potentially leading to a recession in the coming months. The impending discourse revolves around whether the economy will experience a gentle descent or plunge into a more profound recession.
