The latest data from the Department of Commerce show that the economy, as measured by gross domestic product (GDP), grew 2.6% from July through September, at an annualized rate. After two consecutive quarters of negative growth, the economy is now roughly flat for the first nine months of 2022. Although depressing, that’s not the worst part – the real devil is always in the details.
The third quarter GDP report does not show a stronger consumer or a healthy business climate. Rather, consumer expenditures grew at an anemic 1.4% and business investment fell for the second quarter in a row, dropping 8.5%. These two categories combined for a decrease of 0.62 percentage points to GDP while government spending grew 2.4%. Even including the nonproductive government sector, these three categories combined contributed -0.2 percentage points to GDP growth.
So, from where did all the growth come? A category called net exports. This is total exports minus total imports and is commonly called the trade deficit. It shrunk substantially in the third quarter, and that added to GDP.
Interpreting the actual impact of changes in net exports can be tricky. In this case, imports fell 6.9% as Americans were unable to afford as many foreign goods and services as before. This, combined with an increase in exports, added 2.77 percentage points to GDP—more than the total in the headline number.
Far from signs of wealth, these data indicate decline. Although the headline GDP number is positive for the third quarter, it does not reflect an improvement in the life of the common man, contrary to the White House’s rhetoric. The average American’s finances continue to deteriorate under the current administration.
When Biden took office, the economic recovery already underway was growing at an annualized rate of $1.5 trillion and inflation was just 1.4%. In less than two years, Biden has delivered consecutive quarters of negative economic growth and managed to drive inflation so high that prices rose nearly as fast in a single month as they did in the entire year before he became president.
For American families, this has been devastating. Real disposable income is down 12% under Biden and the average worker has lost the equivalent of $3,000 in annual pay because prices have risen so much faster than wages. Higher interest rates add insult to injury, inflicting another $1,200 per year on average in higher borrowing costs.
But that’s just the average. If you get a mortgage on a median-priced home today, it will cost you $10,000 more per year than when Biden took office. That’s $300,000 more over the life of the loan—for the same house. It’s no wonder homeownership affordability has dropped 33% under Biden.
Savers have also been devastated by Biden’s inflationary and anti-growth policies. The average 401(k) has lost 25% of its value in 2022, about $34,000 per person and $68,000 per couple. With prices rising so fast, many people are unable to save at all and are instead relying on credit cards to make ends meet. Monthly savings have plummeted 83% under Biden while credit card debt is up 23%.
Things are equally grim looking froward. The dollar’s recent strength relative to other currencies signals that foreigners will be able to afford fewer American exports in coming months. That will exacerbate the trade deficit and be reflected in lower future GDP numbers as well. In that case, and unlike the third quarter GDP report, worsening economic numbers do reflect financial pain for Americans as reduced production means fewer jobs and less income.
Sadly, there is little relief in sight coming from the Biden administration, which has only doubled down on failures like its anti-energy agenda, policies that already produced the highest gasoline and diesel prices in the nation’s history. With winter around the corner, there is even the risk of a home-heating-oil shortage.
Instead of reversing course, as the Clinton administration did in the 1990s, the Biden administration seems content to hang its hat on Orwellian word games. Yet just because the White House redefines the word "recession" doesn’t mean families are immune to the financial reality that they cannot afford to live in Biden’s America.
E. J. Antoni is a research fellow in regional economics at The Heritage Foundation’s Center for Data Analysis and a senior fellow at Committee to Unleash Prosperity.