Trump's Economic Triumphs Expose Biden's Failures
The latest economic data reveals a stark contrast between the robust economy inherited by Trump and the hidden weaknesses left by Biden.
The notion that Donald Trump inherited a historically strong economy from Joe Biden has been shattered by the latest GDP report.
Released on Thursday by the Bureau of Economic Analysis, the report confirms the quiet warnings from many economists: the economy was weaker beneath the surface than it appeared. The fourth quarter of 2024 data shows real GDP growth slowing to a mere 2.3 percent, down significantly from the 3.1 percent in the third quarter, indicating a clear loss of momentum.
This figure, unchanged from the initial estimate, hides deeper issues as revisions have uncovered additional weaknesses within the economy. The most critical changes in the latest revision are the downgrades in business investment and consumer income growth.
Gross private domestic investment declined more sharply than previously estimated, dropping from -5.6 percent to -5.7 percent. Within fixed investment, the downward revision was even more severe, moving from -0.6 percent to -1.4 percent.
The real concern, however, is the nonresidential investment, which saw a significant drop from -2.2 percent to -3.2 percent, signaling a deeper pullback in corporate spending. Within this category, equipment investment suffered an already severe decline revised to a calamitous plunge, worsening from -7.8 percent to -9.0 percent.
Intellectual property products, once thought to have grown by 2.6 percent, were revised down to 0.0 percent, indicating a complete halt in the growth of innovation spending.
Business investment is crucial for economic growth. In the short term, it drives demand for capital goods and services. In the long term, it forms the foundation for higher productivity, which ultimately determines wage growth and living standards.
When businesses cut back on investment, they signal uncertainty about future demand, which can become self-fulfilling. The sharper-than-expected decline in business investment suggests that firms are holding off on expansions, a sign that American businesses had grown weary of the economic conditions at the end of the Biden administration.
Historically, large contractions in business investment have often preceded broader slowdowns. This isn’t proof of an imminent recession, but it does suggest that the economy’s underlying resilience is more fragile than previously assumed.
While consumer spending remained a relative bright spot, increasing by 4.2 percent, this number alone doesn’t tell us much about sustainability. Spending on goods was revised downward, and real disposable income growth was weaker than initially reported. In other words, while households are still spending, they’re not necessarily gaining purchasing power at the rate we once thought.
Moreover, the surge in spending has been partially financed by the fading tailwinds of excess savings from the pandemic era. With higher borrowing costs and persistent inflation, it seems likely that the much-talked-about consumer resilience may turn into consumer fragility.
If the labor market begins to crack, spending will probably retreat. That’s why the surge in jobless claims reported this week stirred up a lot of investor anxiety on Thursday.
The latest housing data further reinforces the idea that we may be teetering on the edge of a broader economic slowdown. Pending home sales fell 4.6 percent in January, reaching their lowest level on record dating back to 2001.
This decline, larger than economists had expected, highlights the strain that high mortgage rates and rising home prices are placing on affordability. The South, the nation’s largest home-selling region, saw a 9.2 percent decline in contract signings, the biggest drop since the onset of the COVID-19 pandemic. While winter weather may have played a role, the persistent issue remains affordability—home prices rose 3.9 percent in December from a year earlier, continuing an upward trend that has put homeownership out of reach for many Americans.
Higher mortgage rates, hovering near seven percent, have been a key driver of the slowdown. This suggests that housing, typically a leading indicator for economic activity, could be signaling further weakness ahead. If the housing market continues to deteriorate, its impact will ripple through broader economic sectors, from construction to consumer spending.
Speaking of inflation, the report revised core PCE inflation up a tenth of a point to 2.7 percent. That may not sound like much, but it’s enough to highlight the irresponsibility of the Fed’s cuts at the tail end of the Biden administration. If inflation remains sticky while business investment weakens, we could be heading into the kind of economic environment where growth slows but the Fed needs to keep monetary policy restrictive.
Another warning sign is that the 2.3 percent growth rate required a surge in government spending. Federal outlays increased by 4.0 percent, faster than the 3.2 percent estimated last month. Defense spending surged 4.7 percent, revised up from the prior estimate of 3.3 percent, indicating a troubling reliance on war machine building to grow the economy. While this helped prop up the economy, it’s not a substitute for private sector investment.
The real question is whether businesses regain the confidence to invest, or whether we’re looking at a prolonged period of stagnation. The latest revisions expose deeper economic fragility than the earlier estimate suggested. These are not signs of imminent collapse, but they do indicate an economy that is more fragile than it appeared just a few months ago.