Stealth Stagnation: Why the U.S. Economy Is Not as Robust as You Think

The prevailing narrative about the U.S. economy is that it’s ‘resilient’: despite rapid rate hikes, economic growth has held up and may even be accelerating. Yet looking back, we see a different picture: stagnation that’s gone largely unnoticed thanks to measurement issues and a misleading cyclical view of the labor market. Let’s unpack that.

On a broad measure of activity, the U.S. economy has basically flatlined since the end of 2021, growing less than 1% in total over the period – the weakest 18 months ever seen outside a recession. See the Growth never so weak outside the recession chart.

Growth Never so weak Outside recession

What is this broad measure? It’s an average of two ways of measuring economic activity.1 One (GDP – Gross Domestic Product) adds up total spending by households, businesses, government and on exports; another (GDI – Gross Domestic income) adds up incomes and profits of households and firms.

In reality, the two should match. But no measure is perfect and gaps sometimes open up between them. Right now, the measured level of GDP is very high relative to GDI. GDP says the economy has grown by 1.9% in the past 18 months. GDI says it has contracted by 0.5%. Statisticians can’t find the income to match their estimates of spending. See the Flatlining activity chart.

Flatlining Activity