In a rather striking revelation, the American economy, per a report unveiled on Wednesday by the Commerce Department, sustained its momentum in the third quarter of this year. The gross domestic product (GDP), the cornerstone metric indicating economic health, surged by 2.8% compared to the previous year. Notably, this growth is a slight dip from the 3% observed in the second quarter and a marked decrease from a robust 4.4% during the same quarter last year.
Stephan Weiler, an economist from Colorado State University, articulated a soothing perspective on this phenomenon, suggesting that this 2.8% growth aligns with a long-term economic expansion that, he asserts, should not trigger inflationary fears. “The stove is turned up, but it’s not over-boiling,” he quipped, evoking a sense of cautious optimism.
Amidst these economic currents, the Commerce Department also unveiled inflation statistics, revealing a year-over-year uptick of 1.5% in the personal consumption expenditures price index during the third quarter. This figure remains sedate, particularly as it sits below the Federal Reserve’s target of 2%. In an aggressive move to rein in inflation, the Federal Reserve had incrementally escalated its benchmark interest rate 11 times throughout 2022 and 2023. However, in a surprising reversal last month, the Fed eased its stance, slashing rates by half a percentage point as inflation exhibited signs of cooling, paired with escalating concerns surrounding the labor market.
Last year’s inflation hovered at a striking 3.6%, with a staggering 7.1% increase noted in 2022. As the clock ticks down to a pivotal election, the economy is rapidly becoming a focal point for voters, with inflation identified as their paramount economic concern, as per fresh surveys conducted by Gallup and Bankrate. A wave of optimism washed over Americans in October, as their perceptions of personal finances and the broader economy brightened, reflected in The Conference Board’s Consumer Confidence Index, which recorded its most vigorous monthly surge since March 2021.
However, beneath this veneer of positivity lies a stark partisan divide. A recent poll from the Associated Press-NORC Center for Public Affairs Research disclosed that a mere 38% of voters believe the economy is thriving. This survey underscored the contrasting views between parties, revealing that while a significant 85% of Republicans gauge the economy negatively, 61% of Democrats hold a more favorable view. “I think in general (the economy) is good, but it’s not—unfortunately, even good economies don’t always support the people that are distressed or unemployed,” Weiler mused, acknowledging the complexities of economic perceptions.
ELECTION & THE ECONOMY
With less than a week until Election Day, the economy looms large in discussions between economists and policy experts, particularly concerning the economic platforms of Vice President Kamala Harris and former President Donald Trump. A recent survey by the New York Times/Siena College indicated that 52% of respondents trust Trump over Harris (45%) to navigate the complexities of the economy.
Yet, a cloud of uncertainty looms over both candidates; neither has presented a viable plan to mitigate the nation’s swelling debt burden, as highlighted by the nonpartisan Committee for a Responsible Federal Budget. Their analyses suggest that both candidates’ economic strategies could exacerbate national debt levels—an increase of $3.95 trillion attributed to Harris and a staggering $7.75 trillion tied to Trump.
The predictions from the CRFB carry inherent uncertainties. Economic governance would necessitate collaboration with opposing party members in Congress, a task fraught with challenges. Harris’ approach emphasizes what she calls an “opportunity economy,” advocating for extensive expansions in child tax credits, housing and health care support, enhanced Medicare access, tax reductions on tips, and bolstered border security.
Conversely, Trump proposes a revision of the Tax Cuts & Jobs Act, advocating for further tax reductions for corporations and small businesses, augmented military funding, and an intensified focus on immigration enforcement and border security measures. Estimates from the Penn Wharton Budget Model indicate that Harris’ fiscal proposals could inflate primary deficits by $1.2 trillion over the next decade, whereas Trump’s plans could amplify this concern to $5.8 trillion.
Trump’s inclination towards imposing new tariffs on imports raises eyebrows—a controversial strategy that could potentially escalate prices across the board. “I took in from China hundreds of billions of dollars in taxes and tariffs, and I had no inflation,” Trump exclaimed during a recent economic policy speech. He claimed a low inflation rate during his previous tenure, framing the current inflation landscape as historically unprecedented—a sentiment that has elicited skepticism among economists.
Weiler voiced apprehensions regarding these proposed tariffs, suggesting that such measures could undo the progress achieved in stabilizing inflation. He elaborated, “Because everything is going to get more expensive… It’s not that the companies pay the (big) tariff. They pass most of it along to consumers.” Furthermore, he warned that waves of retaliation from other nations could ripple through the economy, particularly given that the U.S. ranks as the second-largest goods exporter globally.
Renowned economist Robert Blecker has pointed to Trump’s previous tariff implementations, warning that aggressive tariffs—especially if on all imports—would almost certainly elevate consumer prices. While previously the effects were mitigated through sourcing adjustments, the current landscape presents a different challenge altogether.
In a pointed critique, Harris described Trump’s tariff strategy as akin to wielding a machete when a delicate scalpel is necessary, while Weiler characterized her economic proposals as typically Democratic. A coalition of economists, including several Nobel laureates, have publicly endorsed Harris, declaring her economic agenda far superior to what they regard as the misguided policies of Trump.
In the end, as the electoral tension mounts, the path of the American economy drifts through treacherous waters, fraught with partisan strife, economic uncertainty, and the ever-looming specter of rising debt.
