According to the latest numbers from the Bureau of Economic Analysis, the US economy grew by 2.9% in the fourth quarter of last year, and 2.1% for 2022. While the White House has been quick to take credit for the state of the nation’s economy, this latest report should be a cause for concern. Economic growth is slowing down, and the areas that contributed positively to the gross domestic product (GDP) are not necessarily signs of prosperity.
Business investment grew at only 1.4% in the fourth quarter, but that was almost entirely due to inventory growth. Nonresidential investment, which is a key driver of future economic growth, was up just 0.7%. Residential investment fell off a cliff, dropping 26.7% as consumers were unable to afford the combination of high home prices, high interest rates and falling real incomes. This has led to homeownership affordability falling to the lowest level in that metric’s history.
The growth in inventories, which accounted for half the GDP growth in the fourth quarter, is not a good sign either. It is the result of businesses being unable to sell off existing inventories at current prices. Liquidating that inventory at discounts will mean lower profits, further dragging on future growth.
Another positive contributor to the GDP number was net exports, which is simply exports minus imports. But the gain here resulted from a slowdown in international trade, hardly a sign of wealth for Americans. Instead, imports are simply falling faster than exports, which shows up as an increase in GDP.
Perhaps most troubling is the precipitous drop in real disposable income, which fell over $1 trillion in 2022. This is the second-largest percentage drop in real disposable income ever, behind only 1932, the worst year of the Great Depression. Consumers are depleting their savings and burning through the “stimulus” checks they received during 2020 and 2021, credit card debt is growing, and savings have plummeted $1.6 trillion last year, falling below 2009 levels.
As consumers continue depleting cash reserves and borrowing costs are rising, the growth in consumer spending will keep slowing. Since that accounts for roughly two-thirds of GDP, this doesn’t bode well for the economy. Meanwhile, federal nondefense spending grew 11.2% in the fourth quarter, another example of politicians feeding the federal budget while starving the family budget.
It seems that the US economy is on the verge of stalling out. The last thing America needs is more taxing, spending, and regulation by the federal government. Instead, we need to follow the winning formula laid out by President Ronald Reagan and Fed Chair Paul Volcker, which brought the economy back from stagflation. Reagan scaled back government while Volcker stopped the monetary manipulation and allowed interest rates to seek their natural level. Let’s hope we don’t have to relearn that lesson, because the tuition at the school of life isn’t cheap.
FingerLakes1.com is the region’s leading all-digital news publication. The company was founded in 1998 and has been keeping residents informed for more than two decades. Have a lead? Send it to [email protected]