Overall GDP is basically at CBO’s pre-pandemic forecast. The big story for economic growth was the consistent strength of consumer spending, which is more than two-thirds of the economy. It has been consistently running well ahead of CBO’s pre-pandemic forecast. Likely continued impact of huge fiscal support in 2020 and 2021. The countervailing story is the collapse of residential investment. It has fallen for 7 straight quarters, fell 19.3% over the last four quarters, with a decline of 26.7% (annual rate) in Q4. Biggest since the financial crisis. And the third story is that over the pandemic recovery the huge increase in US demand was partly accommodated by rising imports and production shifted from exports to domestic consumption. But the large increase in the trade deficit has been narrowing.
- Date Posted:
- January 25, 2023
My preferred measure — because it avoids some distortions associated with recessions — is debt as a percentage of potential G.D.P., an estimate of what the economy could produce at full employment. The big rise in debt from 2007 to the late 2010s was actually justified by economic events, and any attempt to avoid that rise would have done more harm than good by slowing our recovery even further. Did we borrow too much money? Probably not. During the economic crises of Covid and the Great Recession, adding to the debt was more than justified.