State of the economy — taking hits and running up deficits

TThe state of the economy as President Joe Biden prepares for his State of the Union address is unclear: Although the country has avoided a previous recession, there are signs of trouble and households have been hit by rising prices.

The state’s finances, meanwhile, are not in good shape and are likely to be a point of contention between the White House and congressional Republicans.


Avoiding recession – but difficult economic indicators

On the surface, the economy will remain strong, despite warnings of a fall in 2022 from Republicans and many economists.

Gross domestic product grew a respectable 2.1% in 2022, Bureau of Economic Analysis report. GDP fell in the first two quarters of the year, which is often taken to indicate a recession. But growth returned in the second half of the year.

Meanwhile, the labor market remains tight. At 3.5%, the unemployment rate is the lowest since the 1950s. Monthly job growth was 375,000 in 2022, a very strong picture.

However, some economic indicators suggest that trade may decline in 2023 and that the risk of recession remains.

Most notably, the latest figures show a decline in business investment, and new data released on Friday showed that investment spending fell for the second straight month in December.

“Consumers are weakening and real incomes are lower than expected,” said Edward Moya, chief market analyst at Americas OANDA.

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Perhaps the biggest threat is the delay in the Federal Reserve’s efforts to curb inflation by reducing spending on the economy by raising interest rates. Its financial stability has translated into extremely high mortgage rates, which has hurt the housing market. Housing spending fell at a 27% annual rate in the fourth quarter, the GDP report showed.

Families are hurt by inflation

Although the economy has risen dramatically despite the Fed’s rate hikes, inflation is hurting US consumers because their real wages have fallen and their wages haven’t kept up.

Despite the recent slowdown, inflation remains high. The consumer price index, commonly referred to as inflation, is running at 6.5% in the 12 months ending in December – more than three times what is considered healthy by the Fed.

Both the Bidens and the congressional Democrats have pointed to a slowdown in inflation (the CPI peaked at 9.1% last summer) but high prices are still making consumers’ lives more difficult.

Biden and other members of the administration touted rising wages as evidence of a thriving economy. And it’s true, wages are rising — wage growth for nonfarm workers rose 5.1% in the 12 months ending in November, according to the Economic Policy Institute.

But inflation-adjusted wages have been falling — meaning workers have less purchasing power than a year ago. Real weekly earnings have fallen 3.4% since the start of 2021, according to a study from the Bureau of Labor Statistics.

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This has led consumers to believe that the economy is slowing down, as their finances are worse than before.

In fact, a Morning Application research released last week found that 46% of adults think the economy is already in recession, while 35% of respondents say it is not.

After reading the CPI this month, Sen. Rick Scott (R-FL) took down Biden, who has been optimistic about recent reports showing inflation, while still high, is coming down from its peak.

“This CPI is a shameful reminder that Americans have endured two full years of inflation under Joe Biden. Two full years of hard-working and poor families, like the one I grew up in, having to make tough decisions about fuel, food, and paying the bills,” he said.

The deficit is growing – and the war on debt is expected

The federal deficit fell in 2022 as emergency spending measures fell, giving Biden his favorite talking points. But the deficit is now rising again.

The deficit for the first quarter of fiscal year 2023 rose to $418 billion, $41 billion higher than the same period last year.

The federal government is facing a long-term imbalance between income and expenditure. The annual deficit is expected by the DRM Budget office to increase steadily throughout the decade. This will raise the debt, which represents the deficit. The current federal debt is equal to the annual gross domestic product.

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Another increase in interest rates would cause a major strain on the government’s finances, forcing significant cuts to essential programs.

Biden did not offer a plan to fix the debt. Republicans, who now control the House of Representatives, are eager to force his hand on spending cuts or give him the political price of red ink.

They have leverage over him in the form of the federal debt, which must be legally raised to ensure that the Treasury can pay its debts. Treasury Secretary Janet Yellen has said the limit must be raised by June to avoid volatility, which economists say could be damaging to the economy.

House Speaker Kevin McCarthy has called for talks with Mr Biden to reduce “spending”. Biden says he won’t negotiate and Congress should just raise the ceiling.


Republicans have criticized Biden’s comments against the GOP’s plan to use the debt deadline to spend less money. Rep. Jason Smith (R-MO), chairman of the Ways and Means Committee, told a Washington Examiner In the recent interview that Mr. Biden should work with the Republicans.

“Instead of President Biden attacking his opponents, he should be spending his time working with House Republicans to resolve the debt in a way that creates stability. Otherwise, the president is just preparing for America’s debt crisis,” Smith said, noting that “other economic reforms” in recent history have been driven by debt.


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