With the world economy having somehow survived Brexit – at least for now! – its economic focus should shift at least partly back to the United States this week. Unfortunately, major analysts and pundits are almost certain to keep ignoring a development that was reinforced by new data last week, and that poses a much bigger threat to the current recovery than the British public’s decision to leave the European Union: Eight years into this expansion, the U.S. economy’s structure looks ever more like its dangerously lopsided, bubble decade self.
We know this because last Tuesday, as Brexit fears were still near their peak, the U.S. government issued its final (for the time being) report on the economy’s growth for the first quarter of this year. As always, the headlines focused on…the headline figure – which revealed inflation-adjusted growth of a meager 1.07 percent during those months on an annualized basis.
At least as important, however, these gross domestic product (GDP) statistics also showed what the economy consists of, and the clear message is that it’s more housing- and personal consumption-heavy than during the run-up to the last, devastating financial crisis. Remember: Those sectors were the toxic combination whose reckless expansion ultimately triggered that near-death economic experience.
The historical GDP data makes clear that housing and consumption combined peaked at dominating American economic activity in the second quarter of 2005 – when they comprised 73.27 percent of GDP after inflation. Since the two chunks of the economy wax and wane at different rates, each of them maxed out at different times during the bubble decade – consumption at 67.84 percent of real GDP during the first quarter of 2007, and housing at 6.17 percent in the third quarter of 2005.
The most recent GDP figures show that housing has yet to regain those bubble-decade levels, or even close. As of the first quarter of this year, it stood at 3.44 percent of constant dollar GDP. But personal consumption’s share has hit an all-time record: 68.87 percent. Add them up and you see that the toxic combination accounted for 72.31 percent of all U.S. economic activity after inflation. That’s a post-crisis record.
But actually, matters nowadays could be even worse than while the bubble was inflating. For when housing hit its 2005 zenith (and consumption was robust, too), real growth was proceeding at a 3.34 percent annualized clip. When consumption peaked, in early 2007, growth was only 0.25 percent annualized. But when the toxic combination hit its 2005 all-time high, growth was 2.09 percent annualized.
In other words, at the start of this year, we just learned from the new GDP data, personal consumption and housing combined also were playing outsized economic roles in America. But they were helping to produce growth of only 1.07 percent annualized. In other words, nearly as much bubble-ization as took place before the financial crisis is spurring considerably less growth.
History never repeats itself exactly, so these figures don’t necessarily mean that America is inexorably moving towards Financial Crisis 2.0. But they indisputably demonstrate that the nation isn’t moving much – if any – further away, either.