Economic growth for the third quarter of 2023 was notably high, but was boosted by a huge increase in federal spending, according to data from the Bureau of Economic Analysis (BEA).
The U.S. reported that Gross Domestic Product (GDP), a measure of economic growth, was 4.9% year-over-year for the third quarter of 2023, far higher than the 2.1% increase that was reported for the second quarter, according to the BEA. The abnormally high growth for the quarter is linked to unsustainable federal spending, according to experts who spoke to the Daily Caller News Foundation. (RELATED: Mortgage Rates Soar To Highest Point In 23 Years As Americans Struggle To Buy Homes)
“The most significant contributions to today’s blowout third quarter U.S. GDP number came from private inventories and government spending,” Peter Earle, economist at the American Institute for Economic Research, told the Daily Caller News Foundation. “Inventories are up in part because U.S. firms have been trying to build up stocks in case the rising trend of union activism shows up in their own backyard. That’s likely a one-time phenomenon and not a basis for ongoing economic growth. And as for government spending being a foundation for growth, even a glance at the trend of US debt and the federal deficit makes clear that it can’t go on forever.”
Consumption from the federal government rose 6.2% for the year, while consumption related to national defense grew 8.0% and nondefense grew 3.9% year-over-year. Private inventories contributed 1.32% out of 4.9% to the real GDP increase after adding nothing in the second quarter and subtracting 2.22% from the first quarter of 2023.
JUST IN: US GDP soared to a blockbuster 4.9% in Q3. That’s the highest since the end of 2021 and a big uptick from 2.1% in Q2.
Strong consumer spending and gov’t spending drove the growth.
Bottom line: No recession in sight. pic.twitter.com/xRmOFfqIBF
— Heather Long (@byHeatherLong) October 26, 2023
Personal consumption, reflecting how much Americans spent on goods and services, grew 4.0% after only growing by 0.8% in the second quarter year-over-year, while durable goods in particular rose 7.6% for the year, according to the BEA. Gross private domestic investment gained 8.4% for the quarter, but equipment investment fell 3.8% year-over-year.
Despite the broad increase across categories, the boost from federal spending represents an unsustainable form of growth that does not contribute to future growth in the same way as private investment might, economists told the DCNF. Additionally, the rise in consumer spending is fueled by a decline in Americans’ savings, which is also unsustainable.
“Government spending is playing a big role in the GDP numbers — it continues growing faster than personal spending, a clearly unsustainable trend,” E.J. Antoni, a research fellow at the Heritage Foundation’s Grover M. Hermann Center for the Federal Budget, told the DCNF.
State and local governments also had a substantial increase in consumption, rising 3.7% for the year in the third quarter of 2023, compared to 4.7% from the second quarter, according to the BEA.
“I never believed we would need a recession to bring inflation down — and today we saw again that the American economy continues to grow even as inflation has come down,” the president said in a statement following the GDP announcement. “It is a testament to the resilience of American consumers and American workers, supported by Bidenomics — my plan to grow the economy by growing the middle class.”
Under Biden, the federal deficit reached $2 trillion for fiscal year 2023 when the president’s failed student debt forgiveness plan is properly accounted for, with the new excess in spending helping to boost GDP by creating additional consumption through deficit spending. The national debt exceeded $33 trillion for the first time in U.S. history this fiscal year.
The cost of the debt that the U.S. has taken on is increasing due to the rising price of Treasury bonds, which have neared 5% in recent weeks. Treasury bonds are facing upward pressure from interest rates, which the Federal Reserve has set to a range of 5.25% and 5.50% in an effort to tame inflation, which remained elevated at 3.7% in August, far higher than the Fed’s 2% target.
“The factors accounting for this improbable burst in growth are temporary, and I expect them to dissipate in the fourth quarter,” Earle told the DCNF. “I do, however, expect the administration to use this opportunity to allege the success of what they call ‘Bidenomics.’ In fact, today’s output number has nothing to do with the only clear policy choices the administration has chosen: increasing regulations, raising taxes, widening deficits, and adding to an already untenable federal debt load.”
The White House referred the DCNF to the president’s previous statement.
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