“The economy is actually booming.”—Richard Bernstein, guest on CNBC, January 15, 2026
“The US economy just delivered a shock. Third-quarter gross domestic product grew at a 4.3% annualized pace, far exceeding expectations and marking the biggest expansion in two years.”—Nicole Goodkind, “The Economy Is Heating Up. Why the Experts Keep Getting It Wrong,” Barron’s, December 24, 2025
No, the economy is not booming. Far from it. Last month, the Conference Board Consumer Confidence Index hit its lowest level since 2014. The monthly ISM manufacturing index registered ten consecutive months of contraction through December. On February 5, the Challenger Report on the US labor market showed announced job cuts in January more than doubled year-over-year, “hitting their highest level since the 2009 Great Recession,” according to Mohamed El-Erian, former CEO of Pimco. Rajiv Jain—portfolio manager of GQG Partners—adds:
We are already seeing cracks appear in the private-credit market. Business development companies, which lend to smaller companies, are under pressure. First Brands [auto parts aftermarket distributor] filed for bankruptcy protection last year; it may be the canary in the coal mine… If you look at housing data, more than half the counties in the U.S. have seen home-price declines for the past six months. The Austin, Texas, market is down 20%. Prices in South Florida are down more than that.
How do we square vigorous GDP statistics with an economy clearly deteriorating? Mises.org contributor Pat Barron explains:
GDP is a not a measure of economic health. (Zimbabwe had the highest GDP [growth] in the world a few years ago.) GDP is a measure of spending. If everything goes up in price, then the same or perhaps even lower economic activity can show an increase in GDP. Government loves GDP because it can manipulate the number by printing money and spending it. Economic columnists in the mainstream press like it, because they don’t have to work hard to really understand what is happening. And few of them understand economic theory. But the myth of a rising GDP is a lesson that few really understand or accept.
Keep in mind, GDP = private consumption + private investment + government spending + (exports – imports). While government officials and mainstream economists try to convince us that this formula accurately measures economic activity, it is the quality of its components that matters.
Let’s start with private consumption and investment. According to Joe Brusuelas—chief economist for RSM US:
Household consumption driven by higher-income consumers and AI-related investment accounted for just under 70% of total growth during the quarter. This disconnect helps explain why the public, particularly those with lower incomes, remains sour on the economy.
If much of the current $3 trillion AI capital spending boom turns out to be malinvestment, and that in turn takes the air out of the large cap stock market balloon, these GDP numbers will not be so flattering.
Next, government spending is largely wasted. Of course, there’s a difference between spending on bombs versus bridges, but both must take from the private productive economy. US military expenditures (which President Trump wishes to increase by over 50 percent) often get a negative return, whereas the biggest suspension bridges in China are designed to last 150 years and weather magnitude 8 earthquakes.
Third, we have the flawed notion of “net exports.” According to Nicole Goodkind,
Third-quarter GDP was boosted, in part, by unusual trade dynamics: Exports rose by 8.8% and imports fell by 4.7%, adding roughly 1.6 percentage points [37%] to headline growth.
The counter-argument is that trade is mutually beneficial. It is the volume and freedom of movement that matter, not whether exports exceed imports. The average tariff rate on goods imported into the US now stands above 15 percent, the highest level since the 1930s. As Pat Barron says,
The effect of tariffs cannot possibly be good for the American citizen. Oh, it may be good for steel workers, etc., but this comes at the cost of making the rest of us poorer, which is very hard to measure empirically. You will not find any statistics that show this to be correct or not. It is theory, based on logic. If the logic is correct, then the theory is correct, no matter what government statistics say.
Finally, GDP growth takes into account inflation. But what happens if the government’s inflation statistics are themselves inflated? That is precisely what happened in 2025 with real inflation likely over 5 percent versus CPI of 2.7 percent.
2025 Cost of Living Inflation
Description |
2025 Change |
| Consumer Price Index (CPI) | +2.7 percent |
| Cost of Living Extremely Well Index (CLEWI1) | +5.5 percent |
| Average cost of a Royal Caribbean cruise | +3.8 percent |
| Vail Epic Pass | +7.0 percent |
| Starbucks Brown Sugar Shaken Espresso | 0 percent |
| Median entry-level home | +2.0 percent |
| Average electricity costs | +6.7 percent |
| Average retail price for regular unleaded gasoline | -6.4 percent |
| Average annual family health insurance premium | +5.5 percent |
| Average annual tuition for private day schools | +7.4 percent |
| Cost to invest in S&P 500 index fund | +17.7 percent |
| Cost to hedge against inflation (INFL2) | +18.3 percent |
| Cost to insure against hyperinflation (gold) | +63.7 percent |
| Cost to insure against capital controls (Bitcoin) | -6.3 percent |
- Forbes Cost of Living Extremely Well Index
- Horizon Kinetics Inflation Beneficiaries ETF
True prosperity cannot be measured by aggregate spending totals prone to manipulation and malinvestment, but by private-sector health, wage gains across income levels, and genuine productive investment. The disconnect between official statistics and the lived reality for many Americans has never been greater.
