Even if GDP growth is 0% for the Summer, I'm not too worried

If you look at the projections from the Federal Reserve Bank in Atlanta, it is possible that we will see headlines tomorrow that say real GDP growth was near ZERO for the 3rd quarter of 2021. And it's because the high growth that was anticipated at the start of July didn't end up happening.

That would indicate an economy that is stalling out, in a time when unemployment claims are dropping and September’s “disappointing” jobs report was still a gain of nearly 200,000. So what’s going on? The breakdown of the Atlanta Fed’s analysis gives a good clue.

The biggest culprits are that there has barely been any real consumer spending growth, and that our trade deficit has significantly grown (as indicated by the net exports figure). Both are especially odd to see in a time when there is much concern over supply bottlenecks of products coming from overseas, which indicate high demand and not enough imports coming in.

So what’s going on? It seems that part of this is related to the bump up in inflation that has happened in 2021, if you go by the income and spending reports. Nominal growth in consumer spending has recently been around a 5% rate, but overall inflation is also running around 5%, which would mean real growth of 0%. But that may be a widely different situation depending on what industry you’re in, as we’ve seen in recent months.

For example, real spending in transportation services has continued to grow throughout the Summer, and rose by 5.8% between June and August. But spending on autos and RVs have plummeted since Spring, with autos unwinding almost all of the gains that happened in the previous year.

This indicates to me that this economy is still wrestling with the fallout from the pandemic (along with the fact that a sizable amount of people are, you know, no longer with us), and that the Biden Boom that we had in the 1st Half of 2021 has leveled off for the time being.

If you think it seems like I am not worried about the overall state of the economy despite what may be a lousy GDP number, you’re right. Job and wage growth is continuing (and in fact, wage growth is accelerating), and some of this is merely reversion to a more normal level of 9-month growth for 2021 than it is any kind of economic weakness.

I have confidence that many of these supply strains are short term, and in looking at recent data such as the increase in homes under construction and in authorized housing construction that has yet to start, it indicates that perhaps some growth is coming back to those industries.

Once those products finish and come on line, along with the recent growth in manufacturing shipments and inventories, those items will be added to our GDP numbers, and some of the shortages might be able to be cleared to meet demand that still seems to be there.

So while the adjustments aren’t fun for now, and that our recovery from the COVID-19-induced recession may have taken a breather in Q3, I think the underlying situation isn’t that bad. But I also don’t think this economy will ever operate the same as it was before 2020, so we need are policies that make our support system more robust to deal with the disruptions that the “new normal” is giving us, and to take steps to re-level a playing field that has been far too slanted toward those who are already prospering and secure.

This week and the next one will give us a lot of clues as to whether we can do that, or if we’ll continue to slog our way through an economy that may be near its limits in terms of what more it can do without improved public health, and the government restructuring how things are done.