GDP Data Shows Roaring US Economy, But There's One Weakness — And It Hits Your Wallet

The U.S. economy is in good shape, but close observers of Thursday's gross domestic product report are flagging some unsettling trends.

What Happened: Indeed, the latest data exceeded economist projections. The U.S. economy recorded an impressive 4.9% growth rate in the third quarter of 2023.

But there's a "red flag," according to the Washington Post's economic columnist, Heather Long:

 

This is a stellar GDP report

-Strong consumer spending
-Biz building up inventories again
-Exports up
-Housing showing signs of life
-Gov't spending is solid

The red flag? = Inflation-adjusted incomes and savings went down. "Real disposable personal income decreased 1%" pic.twitter.com/7FXNBQ9qBE — Heather Long (@byHeatherLong) October 26, 2023

See Also: Sizzling Q3 GDP Defies Recession Forecasts, But Interest Rate Hike Warnings Are Dragging US Stock Performance

Why It Matters: Families, on average, are making less money. Consider the numbers, courtesy of Census data:

• Real median household income was $74,580 in 2022
• That's a 2.3% decline from 2021's $76,330 figure
• Householders under the age of 65 experienced a decline in median household income of 1.4% from 2021
• Householders aged 65 and over did not experience a significant change in median income between 2021 and 2022
• The money income Gini index decreased by 1.2% between 2021 and 2022 (from 0.494 to 0.488)— the first time the Gini index has shown an annual decrease since 2007.
• Between 2021 and 2022, the number of full-time, year-round workers increased by 3.4%, compared to a 1.7% increase in the number of total workers. This suggests a continuing shift from working part-time or part-year to full-time, year-round work.
• The real median earnings of all workers (including part-time and full-time workers) decreased 2.2% between 2021 and 2022. Median earnings of those who worked full-time, year-round decreased 1.3%.
• Median family income, adjusted for inflation, slipped every year since 2019.

"Economic growth transitioned from resilience to reacceleration this quarter," Olu Sonola, head of U.S. economics at Fitch Group, said in a prepared statement.

This defies the Federal Reserve’s aggressive tightening cycle and tighter financial conditions, he said. 

"The strength of consumer spending and the boost to growth from government spending does not make the Fed’s job easier over the coming quarters," Sonola added.

"The bottom line is that the staying power of this growth spurt is questionable going forward, above-trend economic growth cannot sustainably co-exist alongside an increasingly restrictive interest rate environment. The Fed’s higher for longer message may turn out to be much higher for much longer."

Americans are also saving less. This trend was evident last month when the personal savings rate, which represents the percentage of disposable income individuals save, stood at 3.9% for August.

This figure is notably lower than the long-standing average of about 8.9% over the past decades, according to the U.S. Bureau of Economic Analysis.

What's Next: Economists and analysts remain cautious about what the next 12 months will bring.

“The U.S. consumer has so been hanging tough and powering the economy forward, but I expect much slower growth the rest of the year,” Mark Zandi, chief economist at Moody’s Analytics, told The Washington Post.

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Image: Shutterstock.