No Landing Yet: Consumers Refuse to Give Up, Government Spending Jumps

Annual GDP for 2022 rose at an average pre-pandemic rate, strong second half, weak first half. “Freak event” that sunk Q1 GDP completely unwound.

GDP, not adjusted for inflation and expressed in today’s dollars (“nominal” GDP), jumped by a seasonally adjusted annual rate of 6.5% in Q4, from Q3, to $26.1 trillion, according to the Bureau of Economic Analysis today.

GDP, adjusted for inflation and expressed in 2012 dollars, rose by a seasonally adjusted annual rate of 2.9% in Q4 from Q3, after the 3.2% gain in the third quarter, and after two quarters of declines in the first half. The drop in Q1 had largely been caused by the “freak event,” as I called it, of the exploding trade deficit that has now been more than unwound (the chart is cropped at +9% and at -9% to cut off the 30% swings in 2020):

The increase in Q4 inflation-adjusted GDP was driven by:

• Consumer spending. Americans just refuse to give up. They got big wage increases and many were still flush with money, and they managed to outspend inflation, no problem.
• Improvement of the trade deficit to less horrible levels.
• Government investment and consumption.
• Investment in private inventories, which are reverting to trend, after the shortages.

A big negative was residential fixed investment, which continued to plunge. Investment in fixed equipment also fell.

“Real” GDP, adjusted for inflation by expressing it in 2012 dollars, rose to a record seasonally adjusted annual rate of $20.02 trillion:

Annual “real” GDP growth in 2022, at 2.1%, was right in line with the average before the pandemic:

Consumer spending on goods and services, adjusted for inflation, grew by an annual rate of 2.1% in Q4, roughly the same pace of growth as in the prior two quarters. Spending on goods and services, both, increased.

The share of consumer spending as a percent of GDP, at 70.6%, was still above the pre-pandemic range of 68% to 69%, as other parts of the economy, particularly the trade deficit – in part caused by consumer spending on goods – haven’t recovered to pre-pandemic levels.

Government consumption and investment rose by 3.7% (adjusted for inflation and annualized), the second quarter in a row of increases, after five quarters in a row of declines.

Federal government: +6.2%, second quarter in a row of increases, after five quarters in a row of declines:

• National defense: +2.4%.
• Nondefense: +11.2%.

State and local government: +2.3%, second quarter in a row of increases, after three quarters in a row of declines.

Government consumption and investment do not include transfer payments and other direct payments to consumers (stimulus payments, unemployment payments, Social Security payments, etc.), which are counted in GDP when consumers and businesses spend or invest these payments from the government.

Gross private domestic investment rose by 1.4% (adjusted for inflation, annualized), after the plunges in the prior two quarters (-9.6% and -14.1%):

• Nonresidential fixed investments: +0.7%:
  • Structures: +0.4%.
  • Equipment: -3.7%.
  • Intellectual property products (software, etc.): +5.3%, 10th big increase in a row.
• Residential fixed investment: -26.7%, third plunge in a row, after smaller drops before.

The Trade Deficit (“net exports”) in goods & services improved by $36 billion, third month in a row of sharp bounce-backs from the catastrophic level in Q1 (2012 dollars, annualized).

Exports add to GDP, imports subtract from GDP. “Net Exports” (exports minus imports) have been dragging down GDP for decades, as imports worsened year after year in leaps and bounds, while exports only increased a little. Corporate America went on an all-out effort to “globalize” production to other countries. Plus, in recent years, overseas vendors have been able to sell directly to US consumers via internet platforms.

The catastrophic trade deficit during the pandemic was caused by consumers buying a historic amount of goods, a lot of which were imported, or their components were imported.

In Q4, exports fell by 1.3% while imports fell much more, by 4.6% from a larger base:

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Editor’s Note: The summary bullets for this article were chosen by Seeking Alpha editors.