GDP report reveals ominous Great Depression warning sign not seen since 1932

Thursday's GDP report shows that real disposable income has fallen off a cliff

The latest numbers from the Bureau of Economic Analysis show that the U.S. economy grew by 2.9 percent in the fourth quarter of last year, and 2.1 percent for 2022. While the White House was quick to take credit for the state of the nation’s economy, they might want to think twice. This latest report should have alarm bells ringing, not trumpets sounding.

That’s because economic growth is slowing down. Even the areas which contributed positively to gross domestic product (GDP) are not necessarily signs of prosperity. For example, business investment grew at only 1.4 percent in the fourth quarter, but that was almost entirely inventory growth. Nonresidential investment, a key driver of future economic growth, was up just 0.7 percent.

Meanwhile, residential investment fell off a cliff, dropping 26.7 percent as consumers were unable to afford the combination of high home prices, high interest rates and falling real incomes. No wonder homeownership affordability has fallen to the lowest level in that metric’s history.


But the growth in inventories, which accounted for half the GDP growth in the fourth quarter, is not a good sign, either. It is the result of businesses being unable to sell off existing inventories at current prices. Liquidating that inventory at discounts will mean lower profits, a further drag on future growth.

Another positive contributor to the GDP number was net exports, which is simply exports minus imports. But the gain here resulted from a slowdown in international trade — hardly a sign of wealth for Americans. Instead, imports are simply falling faster than exports, which shows up as an increase in GDP.

The most troubling information in the GDP report is the precipitous drop in real disposable income, which fell over $1 trillion in 2022. For context, this is the second-largest percentage drop in real disposable income ever, behind only 1932, the worst year of the Great Depression.

To see why, imagine your hours have been cut back at work. You’re now earning $100 less a week, so you decide to reduce your weekly spending by $105. Your budget then shows a net increase of $5 left over at the end of the week. Your earnings are like exports, your spending like imports and the overall change to your budget is like net exports.

So, even though you are worse off, just going by the change to your budget, you appear to be better off. That is exactly what happened with net exports in the GDP report.


But perhaps most troubling is the precipitous drop in real disposable income, which fell over $1 trillion in 2022.

For context, this is the second-largest percentage drop in real disposable income ever, behind only 1932, the worst year of the Great Depression. To keep up with inflation, consumers are depleting their savings and burning through the "stimulus" checks they received during 2020 and 2021. Credit card debt continues growing, while savings plummeted $1.6 trillion last year, falling below 2009 levels.

As consumers continue depleting cash reserves and borrowing costs are rising, the growth in consumer spending will keep slowing. Since that accounts for roughly two-thirds of GDP, this doesn’t bode well for the economy.

Just how much pain is the consumer feeling? The average family has lost about $6,000 in annual purchasing power under Biden because prices have risen so much faster than wages. Higher interest rates have increased annual borrowing costs by $1,400, so that the average family effectively has $7,400 less in their annual budget. 


But that’s just the average. Someone trying to buy a median priced home today will have a monthly mortgage payment that is 80 percent higher than when Biden took office. That means spending an extra $9,500 a year for the same house. It’s no wonder people are financially strapped and taking on second or third jobs in this economy.

Meanwhile, federal nondefense spending grew 11.2 percent in the fourth quarter, another example of politicians feeding the federal budget while starving the family budget.


If you’ve ever driven a car that ran out of gas, you may have noticed the engine rev up right before stalling out. That seems to be what we are witnessing with the economy — an engine running on fumes, about to stop. 

The last thing America needs is more taxing, spending and regulation by the federal government. Instead, we need to follow the winning formula laid out by President Ronald Reagan and Fed Chair Paul Volcker, which brought the economy back from stagflation. 

Reagan scaled back government while Volcker stopped the monetary manipulation and allowed interest rates to seek their natural level. 

Let’s hope we don’t have to relearn that lesson — because the tuition at the school of life isn’t cheap.

E. J. Antoni is a research fellow at The Heritage Foundation’s Center for Data Analysis and a senior fellow at Committee to Unleash Prosperity.