The economy grew at a 2.8 percent annualized rate in the third quarter, reports the Bureau of Economic Analysis, up from 2.5 percent in the second quarter and 1.1 percent in first quarter.
Meanwhile, personal consumption has steadily slowed down the past three quarters from 2.8 percent, to 1.8 percent, to 1.5 percent in the third quarter.
Why the contradiction? Consumer spending is usually thought to drive economic growth, not run contrary to it. So what gives?
“The acceleration in real Gross Domestic Product (GDP) growth in the third quarter primarily reflected a deceleration in imports,” among other items, the Bureau reports.
Which tells you much of what you need to know, since the trade deficit counts against the GDP. When the trade deficit narrows, economic growth is seemingly boosted, and when it increases, it detracts from reported growth. Sure enough, this year the trade deficit has dropped from $523 billion in the first quarter, to $509 billion in the second, and to $493 billion today.
Yet the slowdown of imports corresponds directly to the slowdown of consumer spending — Americans were buying less of everything. That is actually not a good sign going forward.
Shrinking trade deficits are often associated with recessions, as was the case both in 2001 and 2009, according to data compiled by the Federal Reserve. In fact prior to the last two recessions, the trade deficit was narrowing. It is predictive.
That is because as consumer spending slows down, imports from overseas dry up, an overall indication global trade is slowing down.
Likely, the shrinking imports can be attributed to continued stagnation in Europe and a slowdown in emerging economies like China, Brazil, and elsewhere. All fed by less consumption here.
Which is little wonder.
The Bureau of Labor Statistics finds only 0.9 percent growth in real wages the past twelve months, and in the past five months, wages have actually declined by 0.2 percent.
To make the point even further, in the first two quarters of 2013, the amount of credit outstanding nationwide — that is, all debts public and private — has expanded by $658.6 billion, according to data compiled by the U.S. Federal Reserve.
If it continues at that pace, it will grow a total of $1.3 trillion by year’s end to about $58.2 trillion, a 2.3 percent increase — far below its postwar average of 7.9 percent a year. Slow credit is another indication of less consumption.
The reason for that is because the household credit situation is only slowly improving. Average household credit is 207 percent of household median income, down from its 2007 high of 233 percent, but well above the 135 percent of just 20 years ago. It’s going to take a long time for Americans to work through all that debt.
Moreover, the labor force participation rate is at its lowest level since Jimmy Carter was president, 35 years ago. And it’s not even because Baby Boomers are retiring per se — those over 65 years old are working longer and at higher rates than in years past. The people who cannot find jobs and are failing to enter the labor force are younger, a terrible indicator.
In the past month alone, a devastating 932,000 left the labor force in what Americans for Limited Government President Nathan Mehrens called “a wholesale loss of hope that Americans have a future in the U.S. economic system.”
So, while 2.8 percent economic growth sounds nice, when you look behind the numbers, it portends an economic horror show. Wages are flat, the workforce is not really growing (even though population is), and even debt accumulation is slowing, all bearish indicators of sluggish economic growth in the future.
The American consumer appears to be tapped out, and with good reason.
Robert Romano is the senior editor of Americans for Limited Government.
