Gross domestic product is the sum of all goods and services produced within a country and is the broadest measure of an economy.
“Although growth has slowed, it’s clear the economy is still on a solid trajectory,” said Ben Ayers, senior economist at Nationwide, which recently withdrew its forecast for a recession this year. “We’ve had very strong job growth, which is driving income growth and giving people money to go out and spend. But it’s also keeping inflation high. To be honest, any slowdown in the economy is good news.
Four years into the pandemic recession, the U.S. economy has rebounded much more strongly than expected. The unemployment rate is 3.8%, the longest stretch of near-record low unemployment since 1970. Wages are rising. And importantly, families, businesses and governments continue to spend freely and money continues to flow into the economy.
Its strong spending, particularly on travel, restaurants, concerts and other services, has recently pushed up inflation, raising concerns that the Federal Reserve may have to work more aggressively to slow the economy. It’s reignited.
The central bank has raised interest rates 11 times in the past two years, increasing borrowing costs for families and businesses. This has dampened some parts of the economy, such as home sales, but demand remains strong in many other regions. Consumer spending rose 0.8% in February, the largest single-month increase in a year, as families splurged on things like flights, new cars and eating out.
Ralph Lapa opened his brewery in Coconut Creek, Fla., two months ago and says he’s been seeing a steady stream of young families and other locals stopping by for $7 pints. Night events with special events are especially popular. We host karaoke on Wednesdays, live music Thursday through Sunday, and paint and ship events once a month.
“People may be worried about inflation, but everyone seems to have money to eat and drink,” he says. “They want to be outside. They want live music, family- and dog-friendly places to hang out.”
Rapa, a railroad safety and health manager, came up with the idea for Rule G Brewing Company three years ago when the pandemic was still in full swing. He has poured thousands of dollars into the business, using a combination of personal funds, retirement savings, crowdfunding, investments and grants from the Small Business Administration, and expects it will take several years to turn a profit. In the meantime, Lapa is hopeful his business and the economy will hold up, he said.
“I don’t want to say this industry is recession-proof because bars fail all the time,” he says. “But we’re in a good place right now. People are out and want to have a good time.”
Still, there is growing evidence that Americans are moving backwards. Many families have depleted their pandemic savings and are taking on additional debt to cover expenses. Credit card debt has increased by 22% since the pandemic. Delinquencies on credit cards and auto loans are also on the rise, especially among young people and low-income Americans, as inflation and rising interest rates take a toll on household finances.
“We’re a little concerned about the U.S. consumer,” said Eric Lund, chief economist at the Conference Board. “Debt has skyrocketed so much that just the interest payments are eating into people’s wallets and their ability to spend and save.”
As a result, consumer spending could slow in the coming months, hurting economic growth, Lund said. He predicted gross domestic product (GDP) growth would slow to 0.5% in mid-year, but recover in the fall.
“I don’t think things will change significantly this year, but I think consumers will need to stop and think seriously about how they spend their money,” he said.
In Bend, Oregon, Kristy Coughlin and her family started reevaluating their spending, especially on food. Instead of going out for dinner three times a week as they used to, they are increasingly eating “hodgepodge” meals at home. For example, enchiladas with tater tots or leftover rotisserie chicken with chili.
“We buy less fresh food than we used to,” said a 40-year-old registered dietitian. “You can’t buy carts at the grocery store anymore. My new rule is, ‘Don’t buy anything you can’t carry.’
Her family of three also relies more on frozen fruits and vegetables, canned beans and leftover meat. Coughlin, who has 17 chickens in his garden, started trading eggs for his morning beer at a local coffee shop. Her family spends about $1,800 a month on groceries, which is significantly more than before the pandemic.
Other expenses also increased, including medical bills and college costs for her eldest daughter. Coughlin and her husband, an electrician, are both self-employed, making them especially vulnerable to the vagaries of the economy. They are not in financial trouble, at least for now. “But we are proactively making cuts, just in case,” she said.