OUR DAILY THREAD: GDP Is SOL
Supply side hustles
THE SET-UP: Today’s GDP number came in late and it came in hot. It came in late because of the prolonged government shutdown. It came in hot because consumers are consuming and the war business is booming. That All-American combo helped push 3rd Quarter GDP to 4.3% … the highest in two years.
For Trump, it was a welcomed oasis of good news after a month spent stumbling around a politically parched desert. He’s hitting all-time lows in the polls and the precipitous decline is largely attributed to widespread dissatisfaction with his handling of the economy. He was, therefore, understandably eager to share the good news via the social media side of his newly-created social media/nuclear fusion company:
Q3 GDP came in at 4.3%, BLOWING PAST expectations of 3.2%. 60 of 61 Bloomberg Economists got it WRONG, but “TRUMP,” and some other Geniuses, got it right. The SUCCESS is due to Good Government, and TARIFFS. Consumer spending is STRONG, Net Exports are WAY UP, Imports and Trade Deficits are WAY DOWN, and there is NO INFLATION! Because of my Tax Bill (THE GREAT BIG BEAUTIFUL BILL) and TARIFFS, INVESTMENT IS SETTING RECORDS. The Trump Economic Golden Age is FULL steam ahead — “You haven’t seen anything yet!” Thank you for your attention to this matter. MAKE AMERICA GREAT AGAIN!
Ironically, today’s strong GDP may be the worse thing that could’ve happened to him. The problem is that GDP, much like the stock market, isn’t telling the full story of late-stage Supply Side America. It took nearly fifty years, but the Fed-fueled feeding frenzy after the Crash of 2008 finally bifurcated the economy into two distinct economies. The accumulation of wealth and capital on the supply side of the economy is so extreme now … the top 10% of the economy can easily hide the struggles and hardship experienced by the bottom 60%. To wit, it’s been reported throughout 2025 that roughly the top 10% has accounted for nearly 50% of all consumer activity. So, we hear reports that consumer spending is “strong” … but it is only “strong” because a small cadre of very wealthy consumers is unfazed by inflation or the vicissitudes of a slowing job market. They can make cash offers on homes or buy luxury items, but even they like a good bargain and higher income consumers are increasingly shopping in discount retail outlets … thus further distorting the aggregate picture.
Basically, Supply Side economics has rendered GDP obsolete. This bifurcated economy cannot be fully understood by an aggregate number like Gross Domestic Product. Not to worry, though. Business reporters get it:
CNN Business reported:
Less than two hours after the GDP report was released, the Conference Board reported consumer confidence declined substantially this month, down 3.8 points from November. The December reading of 89.1 was the lowest since April, when Trump introduced his “Liberation Day” tariffs.
The report showed that consumers’ views of their family’s current financial situation dipped into negative territory for the first time in nearly four years.
Kiplinger’s observed:
“Consumers [are] concerned about employment,” observes Neil Dutta, head of economics at Renaissance Macro Research. “Stock prices are up. Gas prices are down. However, consumer confidence ends the year in the proverbial toilet. Attitudes about the labor market are likely behind the move.”
Dutta notes the Conference Board’s Labor Differential, which is the percent of respondents who say jobs are “plentiful” minus the percent who say jobs are “hard to get,” declined to a “fresh low” of 5.9.
“Consumers do not see stabilization in the labor market,” he concludes. “When consumers tell us it is getting more challenging to find jobs, it usually pays to believe them.”
Business Times noted:
Economists cautioned that the strong headline growth masked widening disparities across income groups. Surveys suggest higher-income households continued to drive spending, benefiting from equity-market gains, while middle- and lower-income consumers struggled under rising living costs.
The data also reinforced what economists describe as a K-shaped economy. Lower-income households are allocating more of their budgets to necessities such as groceries and utilities, while cutting back on discretionary items including travel, clothing, and dining out.
ING summed it up:
Looking at the details, the K-shaped economy is staring us right in the face. Notwithstanding today’s contribution from net trade, we’ve written a lot about the bifurcation in the household sector – the top 20% of households by income continue to spend strongly, boosted by high incomes and soaring wealth, while the bottom 60% are really struggling on concern about job security and the potential for tariff-induced price hikes. This goes a long way in explaining why spending is holding up yet confidence is so weak.
It is increasingly obvious in the corporate sector, too – not just in terms of the stock market’s performance but also business capex. For four quarters in a row, business capex outside of tech has contracted – that is a recession-style performance. But investment in computing and software is up 18% year-on-year which means overall business capex continues to rise.
That’s something to keep an eye on … the AI Bubble and the flood of capital investment into data centers is masking the “recession-style performance” of non-AI businesses. I am also starting to see stories detailing the increasingly exotic financing many AI companies are using to hyperscale their AI ambitions. It reminds me of the subprime stage of the housing bubble. And it’s being fueled by the Trump Administration’s fully-integrated approach to Silicon Valley. Trump is actively adding hot air to the bubble.
“The TARIFFS are responsible for the GREAT USA Economic Numbers JUST ANNOUNCED…AND THEY WILL ONLY GET BETTER! Also, NO INFLATION & GREAT NATIONAL SECURITY. Pray for the U.S. Supreme Court!!!”
Obviously, he still can’t wrap his head around the fact that the “old-fashion word” groceries is a constant reminder of “YES, INFLATION!” for all but the wealthiest shoppers. No matter how many times he tells Americans inflation is over and the economy is great, they’ve literally got the receipts that indicate otherwise. -jp