The US economy is on-track to record its strongest annual growth since 1984 for 2021. US Gross Domestic Product soared by 6.4% (annual rate) in the 1Q and 6.7% in the 2Q, as the economy continued to recover from the COVID-19 lockdowns of 2020.
Economic growth then slowed to a more normal 2.3% in the 3Q but most forecasters believe it has rebounded again to above 5% in the current 4Q. We won’t get our first read on 4Q GDP until the end of January.
If the 4Q figures come in as expected, 2021 will be the strongest year of US economic growth since 1984. That’s fantastic! Yet for some reason, most Americans don’t feel nearly so optimistic about the economy. Those of us in the forecasting business are not quite sure why there is this significant disconnect between the good economic numbers and why most Americans have such a dim view of where things stand.
I’ll give you a few possible reasons to think about as we go along today. Yet the major point to be made here is the fact that consumer confidence has plunged in the second half of this year, even though the economy has remained strong. This is not normal. The question is why?
We all know the Consumer Confidence experienced a huge plunge in 2020 as the coronavirus pandemic gripped the economy. Yet the Consumer Confidence Index made a remarkably strong comeback since the lows in spring 2020, as you can see below.
But then in the spring of this year, the Confidence Index began to fall sharply again, even as the GDP data continued to look reasonably strong. Are there things Americans have to be worried about? Sure, there always are but is there something particular that is troubling Americans at present?
The most obvious problem that comes to mind is the recent significant rise in inflation. US inflation has jumped from below 2% in the 1Q of this year to nearly 7% in November and looks to remain elevated for at least a few more quarters. Informed Americans who pay attention to the economy are clearly worried about inflation.
Yet I just don’t think this recent jump in inflation is what is driving confidence down so much at this point. Many Americans are not focusing on the monthly inflation numbers yet. They probably will at some point if the numbers continue to trend higher. But I don’t think that’s the main driver in the decline in confidence to this point.
We also know many Americans are newly concerned about the latest rapid spread of the “Omicron Virus,” the latest COVID-19 variant to burst onto the scene. But while Omicron is spreading faster than pervious variants, I also don’t believe that’s the main driver pushing consumer confidence lower.
I have a different theory. I believe the public is in a generally foul mood because of what they are being repeatedly told by the Biden administration and the mainstream media. They are trying to convince Americans that the economy is in really bad shape in an effort to get their massive “Build Back Better” plan passed into law.
Officially, the Build Back Better plan would cost the government $1.8 trillion. However, some analysts believe it could cost twice that much based on all the new social programs and plans included in it. And it is now common knowledge it does NOT pay for itself as President Biden has promised repeatedly.
Even if the plan raises some revenue, it could easily cost the government over $1 trillion according to the Tax Foundation and others, and that’s if we assume the plan is only $1.8 trillion. Do we really need to add another trillion dollars to our already nearly $30 trillion in national debt? No, we don’t!
Fortunately, it looks like Build Back Better is dead for now. Democrat Senator Joe Manchin of West Virginia has opposed the massive stimulus bill from the start due to its size. He has said he might support something with a smaller price tag, but the Biden administration has so far refused to reduce the size.
In an interview on Fox News Sunday earlier this week, Manchin made it clearer than ever he won’t vote for the BBB. He firmly stated:
“If I can’t go home and explain [the reason for it] to the people of West Virginia, I can’t vote for it. And I cannot vote to continue with this piece of legislation. I just can’t. I’ve tried everything humanly possible. I can’t get there.”
Can’t be much clearer than that! So, even though the BBB passed in the House earlier this year, it must have every Democrat’s vote to pass in the Senate. Hopefully, we’ve dodged this enormous boondoggle!
I agree with your assessment of what a majority (however slim) think about new government programs. We all understand, even if we don’t have advanced economic degrees, that pumping more money into the economy with borrowed funds is inflationary.
Enough is enough.
One other issue that is not considered about Biden’s Bankruptcy Plan (sorry I couldn’t come up with three B’s there) is the destruction of assets that already are in use. This is something else that should be considered.
I know it would be hard to quantify, but a model for this approach was the Obama “Cash for Clunkers” program instituted in 2009 to nudge people into getting rid of their perfectly-working cars that were, in most cases, fully paid-for, and entrapping them into a newer vehicle with its attached new-car loan. There was the direct cost ($2,000 for each car traded in), but there was the higher cost paid for the new vehicle, including the extra mark-up the dealers were able to obtain. In the end, the car owner got a new car, but not necessarily any increased marginal utility; it was still a car.
We need to look beyond the phony-baloney GDP numbers that are pumped out by the government, and start looking at the increase or decrease in utility for what we get.
Continuing on about rebuilding everything: Why are we looking at replacing things that work well (oil, natural gas) with things that work well only part of the time (wind, solar)?
Why are we looking at replacing things that work well, with things that work well only part of the time? It’s called ideology. There is a purpose behind the left’s attempt to control the energy markets, as well as the overall climate game. You can read it here, in a post I did a couple of years ago.
https://www.personalecon101.com/2019/07/the-hidden-agenda-behind-global-warming.html
Like millions of others, the Government has forgot about the retired folks on a fixed income who can not pay the raising cost of bills.