If you look just at 2021, it seems the US economy is tearing higher. The Fed will increasingly have problems maintaining its credibility with interest rates at the zero bound and massive QE and inflation still rising. For one thing, we’re only halfway through 2021. Much of this impressive growth derives from consumer spending, and much of the consumer spending was funded by government benefit programs and monetary stimulus money. This is a problem because the US economy wasn’t exactly in a great place when COVID-19 came along. It wasn’t terrible, either. Real GDP growth had been above 2% since the prior recession. The economy could certainly have been worse, but it rarely posted the kind of growth that was previously normal in recovery phases. This has persisted long enough that even a 6% GDP growth rate this year won’t restore what used to be “average.”

On the surface, it seems like we found it. Consumer spending, largely services rather than goods, accounted for about two-thirds of the Q2 GDP gain. Personal Consumption Expenditures (PCE) rose 11.8% for the quarter. So consumers are back in a spending mood—good news in a consumer-driven economy. What we don’t know is how much of this spending depended on unrepeatable income sources. A family of four that received $5,600 in stimulus money could have gone on a nice vacation, spending liberally on hotels, entertainment, and restaurant meals for a week. Good for them and good for the businesses they visited… but the next week it was over. Nor is it just the fiscal stimulus. The Fed’s asset purchases are driving a home refinancing wave, which in many cases involves taking out cash for improvement projects. That’s good for builders and contractors but again, may not continue. And it often leaves the homeowners even more leveraged than they were before.

More From Maudlin Economics: