• The consumer now represents 68% of the $21.7 trillion U.S. economy.
  • The economy grew by 2.9% in 2018 and 2.4% in 2017.
  • Andrew Yang and Joseph Stiglitz think GDP is not a useful measure of economic health

The U.S. economy expanded by 2.1% in the fourth quarter of 2019, matching analysts’ expectations, according to a preliminary assessment by the Bureau of Economic Analysis. As a result, gross domestic product growth for the full year was estimated at 2.3%, the slowest such pace in three years.

In the final quarter of 2019, the economy witnessed gains in consumer spending, although the rate of increase was 1.8%, well below the 3.2% rate from the third quarter. Personal consumption expenditures, or PCE, added 1.2% to the quarterly rise. The consumer now represents more than two-thirds (68%) of the $21.7 trillion U.S. economy.

For the full year, PCE rose 2.6%, down from 3% in 2018.

The U.S. economy has not grown as quickly as President Donald Trump had forecast.

The economy grew by 2.9% in 2018 and 2.4% in 2017, the first full year of Trump's presidency.

"Consumer confidence and earnings forecasts have shown us that skepticism for the economy's longer-term prospects are starting to have a marked impact," Steve Rick, chief economist at CUNA Mutual Group, told investors in a research note. “Pressures from the geopolitical environment and a changing trade landscape aren't helping, either."

In Thursday’s statement, the government attributed the slower growth in real GDP in 2019, to “decelerations in nonresidential fixed investment and PCE and a downturn in exports, which were partly offset by accelerations in both state and local and federal government spending. Imports increased less in 2019 than in 2018.”

Trump said he expected the economy to grow annually by at least 3% after he signed the Tax Cuts and Jobs Act of 2017, which reduced corporate and individual tax rates. But the economy has fallen short of his projections.

Late last year, Joseph E Stiglitz, a Nobel laureate in economics, said its time to retire GDP as a metric for economic performance.

“The global financial crisis [of 2008] was the ultimate illustration of the deficiencies in commonly used metrics,” he wrote. “None of those metrics gave policymakers or markets adequate warning that something was amiss. Though a few astute economists had sounded the alarm, the standard measures seemed to suggest everything was fine.”

Stiglitz asserts that GDP provides an inaccurate reflection of the country’s true economic health.

“So what if GDP goes up, if most citizens are worse off?,” he posed. “In the first three years of the so-called recovery from the financial crisis, about 91% of the gains went to the top 1%. No wonder that many people doubted the claims of politicians who were then saying the economy was well on the way to a robust recovery.”

Stiglitz further noted that GDP ignores such crucial things as environmental crises and the climate crisis.

“If our economy seems to be growing but that growth is not sustainable because we are destroying the environment and using up scarce natural resources, our statistics should warn us,” he wrote. “But because GDP didn’t include resource depletion and environmental degradation, we typically get an excessively rosy picture. It is clear that something is fundamentally wrong with the way we assess economic performance and social progress.”

Democratic presidential candidate Andrew Yang has also criticized use of GDP, calling it outdated and inaccurate.

"If [GDP, unemployment rate, corporate profits] are your measurements, then of course you're going to think things are going in one direction, while your way of life disintegrates," Yang said. "Even the inventor of GDP, Simon Kuznets, said 100 years ago, this is a terrible measurement of national well-being, and we should never use it as that."

Yang has proposed a new index that factors in such items as inequality, quality of life, underemployment, among others. He has noted how such social ills as depression, suicides, and drug overdoses are ignored in GDP calculations.

Yang has proposed a “human-centered capitalism” as a more important economic metric.

"I'd like to talk about my wife, who is home with our two children, one of whom is autistic," he said. "GDP would include her work at zero when we know it's the opposite of the truth. So we need to start measuring things that actually indicate how we're doing -- things like health, mental health and freedom from substance abuse, childhood success rates, clean air and clean water, and other social indicators."