President Joe Biden is a miracle worker. Despite the Omicron variant and the Federal Reserve scaling back its pandemic-era quantitative easing (QE) program, the U.S. economy achieved impressive growth in the fourth-quarter gross domestic product (GDP). The nexus of power – the White House, the mainstream media, and left-leaning economic commentators – is celebrating the fastest expansion since 1984, purporting that only Democrats can clean up the mess left behind by their Republican predecessors. But is the Ministry of Truth providing the American people an honest assessment of the data?
A Look at Q4 GDP
According to the Bureau of Economic Analysis (BEA), the U.S. economy ballooned at an annualized rate of 6.9% in the October-December period, topping market forecasts of 5.5%. This is also up from the tepid 2.3% gain in the third quarter. For all of 2021, the economy increased 5.7%, the best performance in nearly 40 years. But there was another component to the BEA report: Businesses aggressively restocked their inventories during the holidays.
Personal consumption surged 2.25% in the fourth quarter, up from 1.35% in the July-September span. But consumers will spend more when inflation is running at a four-decade high, with most goods and services soaring throughout last year. Indeed, the biggest expenditures were health care, recreation, and transportation – market segments that have witnessed dramatic increases in prices.
Rounding out the GDP snapshot were fixed investment (+0.25%) and net exports (+2.43%). Imports (-2.43%) and government spending (-0.51%) were on the decline. Some financial experts are concerned that when the restocking reversal occurs, it might lead to a significant drop in the GDP.
Got Stagflation?
The Atlanta Fed published its GDPNow report for the first quarter, and the estimate is not a flattering portrait for the School of Bidenomics. The initial Jan. 28 estimate suggests the economy will grow by just 0.1% in the January-March period, with the U.S. economy on the cusp of contraction. In other words, stagflation – sluggish economic growth and high inflation – could rear its ugly head in the coming months. If the dashboard indicators flash red over the next several weeks, it might force the Federal Reserve to reconsider its tightening efforts, namely pulling the trigger on a hike to the fed funds rate.
Could the dreaded R-word happen if it is worse than what the observers anticipate? A growing number of market analysts are beginning to talk more openly about a recession, particularly without the hooch being manufactured inside the basement of the Eccles Building. Steven DeSanctis, a strategist at Jefferies Financial Group, wrote in a note: "We think the market is now thinking the R word. Why else would the Russell 2000 be down as much as it has been? Investors see an aggressive Fed pushing the U.S. economy into a big slowdown or even a recession over the next year."
(Photo by Chip Somodevilla/Getty Images)
At the same time, many surveys and reports suggest that hedge funds, money managers, and investors do not prognosticate a recession any time soon. With trillions of dollars being injected into the veins of Wall Street and Main Street, it would be an indictment on how ill the U.S. economy is in the event of a downturn. Could this force the Fed to walk back its balance sheet runoff? Will Democrats propose more fiscal stimulus efforts? As the old adage goes, nothing is what it seems!
Who Cares About the GDP?
Let’s be honest: The gross domestic product is perhaps the worst measurement of the economy, although politicians, presidential historians, and the media routinely cite this data point to champion or castrate policies installed by the party in charge. The GDP does not tell you much and was constructed based on the way John Maynard Keynes viewed the economy, which was in line with present-day economists who think it can be managed with levers and nudges. As Liberty Nation wrote in Oct. 2017:
"Imagine this: an entrepreneur decides to build a ship. The boat is an exorbitant investment – lumber, fiberglass, aluminum, cement, et cetera – and is constructed to fish for salmon, provide tourists with impeccable scenery, or to transport cargo. Unfortunately, it doesn’t catch any salmon. It doesn’t carry any passengers or cargo. But it does achieve one thing: Contribute to the nation’s gross domestic product (GDP)."
As eminent economist Murray Rothbard stated, any tactic utilized to demonstrate an average price level with multiple layers of units of goods, be it coffee or cashmere, is "meaningless and illegitimate."
~ Read more from Andrew Moran.
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