Commentary

The Numbers That Do Not Fit the Narrative

Posted on by Bill McCarthy

The latest official reports show an American economy that is still growing faster than most people expected. Gross domestic product rose at a 3.4 percent annual rate in the third quarter. That was the strongest reading in a year and ahead of the forecasts that had been circulating. Private domestic final purchases—the cleanest measure of what households and businesses are actually doing—rose at a 4.9 percent rate, the best pace in more than five years. Those are not the figures of an economy that has stalled. They are the figures of one that keeps finding ways to expand even while energy prices stay high.

Where the Growth Is Coming From

Businesses are spending money. Fixed investment rose at a 12.7 percent annual rate. Spending on equipment alone jumped more than 20 percent. That is the third straight quarter of double-digit gains in equipment outlays. Much of the surge is tied to computers, software, and the physical plant needed to run them. The private sector, not government, is driving the largest share of the increase.

Households are still buying. Consumer spending rose at a 3.8 percent annual rate in the same quarter, matching the pace of the previous three months. Services led the way—health care, restaurants, hotels—while goods spending held up. Personal income continued to rise. Real weekly wages have been higher since the start of the year. New business applications hit a record high. Initial claims for unemployment benefits remain near the lowest levels seen in decades. The unemployment rate averaged 4.1 percent in the third quarter, down from the first half of the year.

Consumer confidence also moved higher in October for the first time in four months. The improvement tracked a modest easing in gasoline prices after the summer spike. People are still frustrated by the cost of food and fuel. They are also reporting better assessments of current business conditions and the job market.

What the Coverage Leaves Out

The same reports that produced the 3.4 percent growth number also showed inflation still elevated. The preferred price index rose 3.6 percent from a year earlier in September, driven in large part by energy. That is the part of the story that has received the most attention. The growth numbers have been paired, in most accounts, with reminders about the war, the price of oil, and the possibility that the Federal Reserve will raise rates again. The fact that private demand is the strongest it has been in half a decade has not been treated as the lead.

Job growth has slowed from the pace of earlier years. Payroll gains averaged roughly fifty thousand a month in the third quarter. That is not a boom. It is also not a contraction. Layoffs remain low. Openings have been stable. The labor market is tighter than the monthly headline sometimes suggests.

The Outlook That Follows the Data

Economists surveyed in October put the chance of a recession in the next twelve months at about one in four. That is essentially unchanged from the summer. Projected growth for the full year has been revised modestly higher. The risk that is most often cited is a sudden drop in the technology investment that has carried so much of the recent expansion. So far that drop has not arrived.

The economy is not free of problems. Energy costs are high. Some households feel the strain more than others. Inflation has not yet returned to the two-percent target. Those facts are real. So is the fact that the most recent official measures of growth, investment, and private demand are stronger than the steady drumbeat of caution would suggest. The numbers are on the page. They are simply not the numbers most people have been told to watch.

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