The latest GDP report has raised concerns about the possibility of a great depression, similar to the one seen in 1932. Despite the fact that some areas of the economy, such as business investment, have contributed positively to the GDP, these are not necessarily indicators of prosperity.
In the fourth quarter of 2022, business investment grew at only 1.4%, but this was almost entirely due to an increase in inventory, while non-residential investment, a key driver of future economic growth, was only 0.7%.
Furthermore, residential investment saw a significant drop of 26.7% as consumers were unable to afford the combination of high home prices, high interest rates, and falling real incomes.
One of the most concerning trends in the latest GDP report is the significant drop in real disposable income, which fell by over one trillion dollars in 2022. This represents the second-largest percentage drop in real disposable income ever, behind only 1932, when the Great Depression hit its worst point.
Consumers are now dipping into their savings and relying on stimulus checks received in 2020 and 2021 to keep up with inflation. This is a worrying trend, as once people run out of savings, it can have a serious impact on their financial stability.
The savings rate has gone from 2.1 trillion dollars to 1.1-1.2 trillion dollars, a significant drop that could have consequences in the near future.
While some might look at the positive aspects of the economy and dismiss the warning signs, the depletion of savings should not be ignored. When people run out of savings, it affects their ability to make ends meet, and as a result, can lead to a downward spiral in the economy.
The recent decrease in the savings rate to 2.4%, the lowest it has been in 17 years, is a worrying sign that consumers are becoming increasingly financially strained.
The economy may not be as bad as some people think, according to Professor Scott Galloway, who tweeted that real GDP is up 6.7% under Biden and that 4.5 million jobs were gained in 2022. Furthermore, inflation over the last six months was down 2% at an annual rate.
• Real GDP is up 6.7% under Biden— Scott Galloway (@profgalloway) February 1, 2023
• we gained 4.5 million jobs in 2022
• inflation over the past 6mo was <2% at an annual rate
The economy is doing better than most Americans think
However, these statistics do not reflect the day-to-day reality for many Americans, who are feeling the impact of the economic downturn.
The average person shopping for everyday goods and services is feeling the effects of the economic slowdown, as prices for essential items such as gas, milk, and electricity have gone up, while thousands of people are being laid off.
The real pain of the economic downturn is being felt by those who are struggling to make ends meet, as their savings are down, and their confidence in the economy is also taking a hit. The increase in prices, such as the $3 increase in gas prices or the $200 increase in monthly shopping expenses, may not be a big deal for those making a lot of money, but for those earning less, it can have a significant impact.
Some have criticised the comments of economists and experts who are not feeling the impact of the economic slowdown, as they are living in a bubble and are not representative of the average American.
The high gas prices in California, for example, are particularly challenging for those who have to drive an hour and a half every day to work. This highlights the importance of considering the experiences of the average person when assessing the health of the economy.
The recent GDP report raises concerns about the possibility of a great depression, similar to the one seen in 1932. Despite some positive aspects of the economy, such as business investment and job gains, the significant drop in real disposable income and the depletion of savings should not be ignored. The real pain of the economic downturn is being felt by those who are struggling to make ends meet.