Biden's stumbling economy was even worse than we thought
That's all for the idea that Donald Trump inherited a historically strong economy from Joe Biden.
The latest GDP report released Thursday by the Bureau of Economic Analysis confirms that many economists have been quietly warnings. Beneath the surface, the economy is weaker than it looks. Data for the 2024 quarter shows actual GDP growth falling from 3.1% to 2.3% in the third quarter, with a clear loss of momentum. Although this figure has not changed since the initial estimate, key components in the report reveal more concern as the revision reveals additional weaknesses.
One of the most important changes in the latest revision is Downgrades corporate investment and consumer income growth. Private gross domestic investment fell from -5.6% to -5.7%, down from previous estimates. Within the fixed investment, the downward revision was even more steep, ranging from -0.6% to -1.4%.
The real concern lies in non-resident investments, which has dropped from -2.2% to -3.2%, signaling Deeperful pullback for corporate spending. Within this category, equipment investments have already plunged into disaster, worsening from -7.8% to -9.0%. Intellectual property products, once estimated to have grown to 2.6%, have been revised to 0.0%, indicating that innovation spending growth has halted.
The role of business investment in economic growth
Why is business investment so important? In the short term, it drives demand for capital goods and services. That's the case in the long run The foundation of higher productivityultimately determines wage growth and standard of living. When companies cut their investments, they show uncertainty about future demand, and that uncertainty has a way of becoming self-realized.
A sharper decline than sharper estimates of corporate investment suggests that companies are restricting expansion. Companies were tired of the economic situation that won at the end of the Biden administration. Historically, massive contractions in business investments have often preceded wider slowdowns. This is not evidence that the recession is turning the corner, but it suggests that the underlying economic resilience is more vulnerable than previously assumed.
Consumer spending is a relatively bright spot, rising 4.2%, but those numbers alone don't talk much about sustainability. Expenses on goods were revised downwards, with actual disposable income growth being weaker than initially reported. In other words, while the household is still spending, They don't necessarily gain the buying power at the speed we once thought.
Furthermore, the surge in spending has been funded in part by the spread of the tail of the decline of excess savings since the pandemic era. High borrowing costs and sustained inflation seem likely to turn a lot of things into consumer vulnerability when it comes to consumer resilience. If the labor market starts to crack, spending will likely recede. That's the reason Surge in unemployment claims This week's report sparked anxiety among many investors on Thursday.
The housing market shows additional weaknesses
Latest housing data reinforces the idea that we may be Wandering at the edge of a wider economic slowdown. Pending home sales date back to 2001, down 4.6% in January, at the lowest level on record. The decline that economists expected was High mortgage rates and rising home prices It remains at an affordable price.
The South, the country's largest home-selling region, saw a 9.2% drop in contract signatures. meanwhile Winter weather may have played a rolethe persistent problem remains affordable. Home prices rose 3.9% from December from the previous year, continuing to rise so that homeownership is out of reach for many Americans.
High mortgage rates, which are hovering at nearly 7%, are a key driver of slowing down. This suggests that housing, usually a key indicator of economic activity, can be created. Signals further weaknesses first. As the housing market continues to deteriorate, its impact will ripple through the wider economic sector. From construction to consumer spending.
Speaking of inflation, this report has increased core PCE inflation by a tenth of a point to 2.7%. That may not sound much, but it's enough to emphasize Irresponsible for the Fed's disconnection at the Biden administration's tail end. While business investments weaken, if inflation remains sticky, growth will slow, but the Fed may head towards the kind of economic environment where monetary policy needs to be restricted.
Another warning sign is that a 2.3% growth rate requires a surge in government spending. Federal spending rose 4.0% faster than the estimated 3.2% last month. Defense expenditure 4.7% has skyrocketed, revised from previous estimates of 3.3%, A troublesome reliance on buildings of war machinery to grow the economy. This helped to support the economy, but it is not a replacement for private sector investment. The real question is whether companies will regain confidence in investing or are they looking at a long period of stagnation.
The latest revision reveals deeper economic vulnerabilities than previous estimates proposed. These are not signs of an imminent collapse, but they show A more fragile economy than it appeared just a few months ago.
