The GDP data are long-term troubling, never mind that the latest GDP number of (inflation-adjusted, yet) 1.1% has a nugget of favorability:
…falling inventories contributed an outsize share to the decline in growth from 2.6% in the previous quarter.
One interpretation of falling inventories is that customers are buying up those inventories, finally, and the drop would seem to stimulate increased production and inventory replenishment—which would be jobs, which would be future spending, which would….
However.
Gross private domestic investment fell 12.5% in the quarter, driven by declines in business equipment (down 7.3%) and residential housing (down 4.2%).
The latter is reduced construction jobs, but its effect is pretty diffuse in this context. What’s long-term troubling is that decline in business equipment, along with the drop in general business investment. When future physical plant—business equipment investment and outright buying—is falling off, businesses that rely on that equipment for production don’t produce, and they have no need for employees to operate that non-existent equipment. Further, businesses that would purchase the output for use in their own production or for resale cannot do so. That sort of shortfall feeds into a feedback loop that’s just the opposite of that inventory replenishment loop. The replenishment loop cannot get started.
There’s also this misunderstanding that underlies the Left’s view of economics, sadly repeated by the Wall Street Journal‘s editors, who should know better.
A characteristic of the post-pandemic recovery has been that business investment often hasn’t kept pace with robust consumer demand, and now it looks like investment might fall behind again.
This runs counter to the theory Keynesians used to sell their pandemic-era spending blowouts—that stoking demand [with a temporary spike in government deficit-causing spending] would stimulate more supply. It hasn’t.
Keynes’ theory is badly distorted by today’s so-called Keynesians, who push sharply increased government stimulus spending in itself as the solution. Keynes did, indeed, include that form of stimulus in his theory, but, critically, he also included in his theory the absolute need to repay as quickly as possible the government debt incurred by that temporary spending spike.
Those conditions do not obtain today. Increases in government spending, including spikes in it, are not temporary, and the resulting government debt does not get paid back at any time. The debt doesn’t even get reduced.
And so here we are, with high inflation (falling only in relation to last year’s enormously high rate; price levels still remain very high relative to an ordinary American’s paycheck) and falling production. That combination is going to lead to a fall-off in demand to match the falling production, and that’s the stuff of recession.