The GDP Illusion: Surging Statistics Hide Pain for Average Americans
Kevin Duffy

“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 Barronexplains:

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

1. Forbes Cost of Living Extremely Well Index
2. 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.

 

Kevin Duffy is principal of Bearing Asset Management which he cofounded in 2002. The firm manages the Bearing Core Fund, a contrarian, macro-themed hedge fund with a flexible mandate.

Bearing gained notoriety during the Great Financial Crisis by betting against stocks like New Century Financial, Fannie Mae, Bear Stearns, and Lehman Brothers. Duffy wrote extensively on the housing and credit bubble, including articles, “Alan, We Have a Problem,” “Mr. Mozilo Goes to Washington,” and “Honey, I Shrunk the Net Worth.” In May 2007 he gave a speech in NYC titled, “It’s a Mad, Mad, Mad, Mad World,” identifying root causes of the bubble. A month later, he issued a warning in an op-ed for Barron’s titled “For Whom Do the Bells Toll?” The Bearing Credit Bubble Index was cited by Marc Faber in speeches and The Gloom, Boom & Doom Report.

Prior to Bearing, Duffy cofounded Lighthouse Capital Management and served as director of research from 1988 to 1999. He chronicled the excesses of the Japan and technology bubbles of the late 1980s and late 1990s, respectively. The firm was later sold to Fisher Investments.

Duffy bought his first stock at the age of thirteen. He earned a BS in Civil Engineering from Missouri University of Science and Technology and has a passion for financial history, Austrian economics and pithy quotes. He also publishes a bimonthly investment letter called the Coffee Can Portfolio.

 

 

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