Breitbart Business Digest: The Gloom and Boom Economy

But This Hasn’t Slowed Consumer Spending

Consumers Keep Saying They Hate This Booming Economy

The gap between household economic sentiment and economic fundamentals has become a chasm.

Wednesday brought another round of economic reports showing the American economy is booming. Consumers are spending more, they have larger financial cushions than we thought, businesses adding more workers than expected, and growth running stronger than previously estimated.

Tuesday’s consumer confidence report sounded as if it had been dispatched from a different country or perhaps a different era. The Conference Board’s confidence index fell to its lowest level since 2014.

The gloom and the boom have arrived together.

Let’s start at home. Personal consumption expenditures jumped 0.9 percent in August. That amounted to an additional $190.8 billion in spending. Of course, inflation accounted for some of the increase, including higher spending on gasoline. But even after adjusting for prices, however, consumption rose 0.6 percent. Real spending had increased just 0.1 percent in July.

Purchases increased across goods and services. Discretionary purchases such as motor vehicles, recreational goods, restaurants, and accommodations contributed to the advance. Americans were opening their wallets across a substantial stretch of the consumer economy.

And this isn’t just one good month. If we annualize the past three months of nominal consumer spending, we get a growth rate of 5.2 percent. If we look at real expenditures, the three-month annualized rate comes to 4.1 percent. To put that in context, the median growth for real expenditures from 2010 to 2019 was 2.3 percent. In the post-COVID period from 2021 through 2024, it was 2.9 percent.

The Economy Got an Upgrade

The GDP revisions supplied more evidence of strength. Second-quarter growth was raised to a 2.2 percent annualized rate from 1.5 percent. First-quarter growth was revised to 2.5 percent from 2.1 percent.

The details were stronger still. Inflation-adjusted consumer spending grew at a 3.8 percent annualized pace in the second quarter, up from the earlier estimate of 3.4 percent.

Real final sales to private domestic purchasers—which combines consumer spending and private fixed investment while excluding government spending, inventories, and trade—grew at a 4.6 percent rate. That was revised upward by four-tenths of a percentage point. In other words, the private economy’s underlying demand was expanding even faster than the already healthy headline GDP.

The income side of the national accounts also improved. Real gross domestic income grew 2.6 percent, revised from 2.2 percent. The average of the output and income measures rose 2.4 percent, compared with the previously reported 1.8 percent. Several measures of the economy received an upgrade on the same morning.

In other words, what had seemed like a somewhat sluggish start to the year now looks very healthy. Prior to the revisions, the economy was growing at an annualized pace of 1.8 percent in the first half of the year. Now it appears to have grown at a 2.4 percent pace.

A Much Stronger Expansion Than Expected

One implication of this is that Federal Reserve officials have likely underestimated real growth. The Federal Open Market Committee’s (FOMC) median projection in the September Summary of Economic Projections (SEP) was for growth of 2.3 percent, which would require a slowdown in the second half of the year. Yet nearly every indicator—from employment to consumer spending to factory orders—shows that the economy has accelerated in recent months. The Atlanta Fed’s GDPNOW estimate has the economy growing at 3.7 percent in the third quarter. If that turns out to be anywhere near the actual rate of expansion, the economy would have to slump to just a less-than-one-percent growth rate in the fourth quarter to hit the Fed estimate.

The most bullish estimate in the SEP was for 2.6 percent growth. Only a single FOMC member penciled that in. And yet even that now looks like it will be an underestimation.

The point is not to criticize the Fed’s powers of prognostication. The Philadelphia Fed’s survey of professional forecasters has growth projected at 2.1 percent for the year, even lower than the median Fed estimate. At the start of the year, the median professional forecast was for just 1.8 percent growth. We bring up these estimates just to highlight how much stronger the economy is than what was expected.

The Unexpected Strength of the Labor Market

When the year began, the forecaster survey from the Philly Fed saw the average unemployment rising to 4.5 percent this year. Instead we’re averaging just 4.25 percent, with the last two months coming in at 4.1 percent. The economy was expected to add an average of 44,5000 jobs per month. So far we’re averaging 80,000.

We won’t get the September jobs numbers in until Friday. But on Wednesday ADP reported 90,000 additional private-sector jobs in September, beating expectations for approximately 70,000 and accelerating from August’s revised 36,000. Manufacturing added 17,000 jobs, and construction gained 15,000, highlighting that this is not just an economic boom but also a blue collar boom.

Meanwhile, jobless claims this year have averaged their lowest level since the late 1960s, when the labor force was half the size it is today. Never in the history of modern economic statistical data have so many Americans enjoyed such solid job security.

A Twelve-Year Low in Confidence

Now set those figures beside the Conference Board’s survey.

Consumer confidence dropped 6.7 points to 81.9 in September. Economists had expected 89. Confidence has declined for three consecutive months. The deterioration reached both judgments about current conditions and expectations for the next six months. The Present Situation Index fell to 109.3. The Expectations Index declined to 63.6.

The details are even more removed from reality. More consumers described business conditions as bad than good. Fewer said jobs were plentiful, and more said they were hard to get. Households also became gloomier about their finances. Confidence weakened among Republicans, Democrats, and independents.

The economy is singing, businesses and households are dancing, and the stock market is clapping along. But when asked, everyone says they hate the music.