Economy Review
The Big Picture
Every month I will review the economic picture and offer some thoughts on what is going on regarding the economy. I will continually test the current data against my “Great Deceleration” thesis that I discussed here. Briefly this thesis is that the core element of economic well being: savings, capital formation, and productivity are in a marked deceleration. This has produced a stagnating income as a result.
Savings and Debt
The personal savings rate continues to decline. In Nov25 it dropped a bit from the previous month to 3.5%. This continues a steep secular decline in the rate of savings over he last 50 years. It was 17.3% in May of 1975, and consistently over 10% in the 1970s. It was as high as 11% in May of 1985 and 7% in May of 1995. Savings are the wellspring of all material growth and prosperity, and the government through, mostly inflation, as well as taxation has put a war upon savings and the data confirms this.
This drop in savins is also occurring as a percentage of the economy. In Q3 of 2025 it was a mere .2, barley above negative. The chart below indicates the long-term downtrend that has taken place.
Debt has also risen enormously during this time frame as well. Federal debt as a percentage of GDP is massive. It peaked, during the pandemic, at 132.66% of GDP. It remains as of Q3 25 at 121.02%. Just prior to the Great Financial Crisis in Q2 of 2008 this figure stood at 63.85%.
Then there is Federal Debt: Total Public Debt:
Consider this: the GDP has shown a Compound Annual Growth Rate (CAGR) of 5.97% over the last 50 years. Total federal debt has a CAGR of 8.8% over the same time period. You cannot grow the debt faster than the economy, much less 2+ percentage points per year faster and sustain your economic well-being. The weight of all this spending is grinding savings into the dirt and puffing up an unsustainable level of debt.
Capital Formation
Savings is not done for its own sake, but rather to turn into capital (tools), that makes workers more productive. This building block of wealth creation is also decelerating.
Net domestic investment: Private: Domestic business, which measures capital formation, reached an all-time high in Q1 25, of $1.033 trillion, dropping to $772.7 billion in Q3 of 2025. More disturbingly, the CAGR went from 10.22% between 1975 and 2000 to 1.38% between 2000 and 2025. Deceleration in action.
Real Net Fixed Investment: Net Non-residential, which measures fixed investment not including housing, saw its CAGR drop from 2.36% 1974-1999 to .88% between 1999-2024. This is consistent with the Great Deceleration thesis.
This should not be a surprise when you look at the 10-Year Real Interest Rate. It sat at 1.67% in January of this year. It’s most recent cycle high was 2.1% in May of 2024. This puts the lie to any idea that the Federal Reserve has been restrictive. They have continually engaged in financial suppression to force down interest rates, thus retarding savings and capital formation.
Productivity
As I discussed in my Great Deceleration post on January 19th. This does not fit neatly into the Great Deceleration Thesis. The CAGR for this metric went from 1.76% between 1975 and 2000 to 1.96% between 2000-2025. See the above linked essay for an explanation of what I think is going on with this.
The Fruits of Our Labors
All of this weight of money creation, assaulting savings, government spending and regulation has decelerated income growth as well. The Industrial production index has ground down from a 3.1% CAGR between December 1975 and December 2000 to a .41% CAGR between December 2000-December 2025.
As for income, let us look at Non-Farm Business Sector: Real Hourly Comp All Workers. This metric sank from a 1.13% CAGR between Q3 1975 to .81% CAGR between Q3 2000 and Q3 2025. Also, Real Median Household Income went from a CAGR of 1.17% between 1984 (first year measured) and 1999, to .61% between 1999-2024. Confirmation of the Great Deceleration Thesis.
Inflation also continues to be a problem. I use the 16% Trimmed Mean CPI, because it is les “noisy”. The Cleveland Fed describes it thus:
- Description: We calculate the median CPI and the 16 percent trimmed-mean CPI based on data released in the Bureau of Labor Statistics’ monthly CPI report.
- Median CPI is the one-month inflation rate of the component whose expenditure weight is in the 50th percentile of price changes.
- 16 percent trimmed-mean CPI is a weighted average of one-month inflation rates of components whose expenditure weights fall below the 92nd percentile and above the 8th percentile of price changes.
- Benefits: By omitting outliers (small and large price changes) and focusing on the interior of the distribution of price changes, the median CPI and the 16 percent trimmed-mean CPI can provide a better signal of the underlying inflation trend than either the all-items CPI or the CPI excluding food and energy (also known as core CPI).
That number sat at 3.72% in December 2025. Well above the Federal Reserve’s (arbitrary) 2% target. Look for this number to stay elevated.
Unemployment
The Labor Department did not release official numbers this month, ostensibly because of the mini shutdown over a budget impasse in Congress. However, ADP, the payroll services company did release its numbers. They showed a paltry gain of 22K for January. This continues a pattern of an economy treading water, with not too many layoffs, but limited hiring.
Conclusions
The data reviewed above paints a clear and troubling picture of the underlying health of the U.S. economy. While headline statistics and official narratives continue to emphasize consumption, employment counts, and nominal growth, the more foundational elements of economic prosperity, savings, capital formation, and productivity, are moving in the wrong direction.
From my perspective, this is decisive. An economy does not grow because people consume; it grows because they produce more efficiently over time, and that efficiency is only made possible through real savings that are converted into productive capital. The long-term collapse in the personal savings rate, now sitting near historic lows, combined with net saving that is barely positive as a share of GDP, signals that the economy’s pool of real savings has been largely exhausted.
At the same time, debt has expanded far faster than output for decades. Federal debt relative to GDP remains extraordinarily high, and its growth rate continues to exceed that of the economy itself. This is not a sign of strength, but of dependence, dependence on continued credit expansion, suppressed interest rates, and monetary accommodation. An economy cannot indefinitely grow its liabilities faster than its productive capacity without eventually paying the price in stagnation, instability, or inflation.
Capital formation data confirms this diagnosis. Measures of real private investment and fixed non‑residential investment show a sharp deceleration compared to prior decades. This means fewer and poorer tools for workers, slower productivity growth, and weaker future income gains. In short, the economy is eating its seed corn.
Persistent inflation, even when measured by trimmed‑mean metrics that remove short‑term noise, further compounds the problem. Inflation is not merely a rise in prices; it is a distortion of the price system itself. By obscuring real scarcities and falsifying profit signals, it undermines economic calculation and penalizes savers, precisely the group required to restore healthy capital formation. Low real interest rates in this environment are not evidence of monetary restraint, but of continued financial repression.
Taken together, these trends are entirely consistent with the “Great Deceleration” thesis. The U.S. economy may continue to “muddle through” for a time, supported by debt, deficits, and policy intervention, but its underlying capacity for sustained, organic growth is weakening. The longer these imbalances persist, the more fragile the system becomes, and the more painful the eventual adjustment is likely to be.
The conclusion is unavoidable, the forward health of the U.S. economy is deteriorating, not because of insufficient spending or demand, but because the foundations of real prosperity, saving, capital formation, and productive investment, have been systematically eroded.
Sorry to crap in your corn flakes so early in the day, but that is how I see it. Everything has not gone to pot just yet, and the headline numbers may stay good for a while. Nonetheless the day of reckoning is coming so it is time we start to think about survival strategies. That said, God has supplied us with the tools to survive, if we but have enough faith to use the brains He gave us.
Praise Be to God
