On July 6, 2023, U.S. President Biden spoke on the U.S. economy and his government’s efforts to revitalize U.S. manufacturing during a visit to Flex LTD, a factory that produces solar microinverters, in West Columbia, South Carolina.
Jonathan Ernst | Reuters
President Joe Biden is trying to convince inflation-weary voters that the U.S. economy is healthy.
“The United States has the best economy in the world,” he said Tell NBC’s “Today” show on Monday made an argument crucial to his re-election campaign.
America’s economic standing in the world is becoming an early flash point in the campaign, with former President Donald Trump frequently describing the country as a business wasteland.
“Our economy in this country is collapsing, in ruins, supply chains are broken, stores are out of stock, deliveries are not coming,” Trump shouted at a rally in Georgia last month.
But the numbers paint a different picture, more in line with Biden’s narrative of U.S. economic dominance than Trump’s doomsday warnings.
Although inflation has picked up over the past few months, it has fallen sharply from its 2022 highs.
“In terms of inflation, it’s too early to tell whether the recent data are more than just an increase,” Fed Chairman Jerome Powell said on Wednesday.
At the same time, according to the January report of the U.S. Bureau of Statistics, the U.S. gross domestic product (GDP) will grow by 2.5% in 2023, significantly exceeding other developed economies. International Monetary Fund. The International Monetary Fund expects the United States to maintain its lead in 2024, but expects interest rates to fall to 2.1%.
Two other large developed economies, Canada and Germany, also lag behind GDP growth in 2023 1.1% and minus 0.3% respectively.
“The U.S. economy is leading the global economy. It’s driving the global economic train,” Moody’s chief economist Mark Zandi told CNBC.
While economists focus on a shaky decline in U.S. inflation, data from developed economies around the world remains hot.exist CanadaFor example, the consumer price index rose 3.9% in 2023, while Germanythe inflation rate is 5.9%.
Countries calculate inflation differently, making direct comparisons difficult.
But even after adjusting for calculation differences, Zandi said the U.S. inflation rate still looks good.
“Using the same approach as the EU, the Fed has hit its target and inflation is below 2%,” he said.
Even with soaring interest rates, the labor market remains strong. Payroll processing company ADP reported on Wednesday that the U.S. private sector added 184,000 jobs in March, well above Dow Jones’s upwardly revised estimate of 155,000 jobs. This is the fastest job growth in the U.S. economy since July 2023.
The stock market also enjoyed record gains and home values soared over the past few months, but they are now starting to fall as inventory improves.
Zandi said that aside from stubbornly high prices that are expected to cool down next year, the fundamentals of the U.S. economy are nearly ideal right now: “The economy is in perfect shape. That’s indisputable.”
“Policy and Luck”
The recent outperformance of the U.S. economy is the result of a combination of factors.
“It’s both policy and luck,” said Joseph Gagnon, an economist at the Peterson Institute for International Economics, a think tank in Washington.
In response to the economic shock caused by the epidemic, the U.S. government has roughly injected Provide $4 trillion in stimulus to the economy to support households and businesses.
U.S. House Speaker Nancy Pelosi (center), Reps. Kevin McCarthy (left) and Steny Hoyer present the House-passed bill during a news conference at the U.S. Capitol in Washington, March 27, 2020. $2 trillion stimulus bill.
Alex Edelman | AFP | Getty Images
“We have more fiscal stimulus than other countries, which is why the U.S. is in a better position to emerge from the COVID-19 recession than other countries,” said Josh Gotbaum, a Republican and former White House and Treasury official. part of the reason for the recovery.” Democratic administration, currently a visiting scholar at the Brookings Institution.
The U.S. stimulus safety net has been costly, leaving the U.S. with a much larger budget deficit than other countries. But it also keeps the economy afloat, providing a buffer so companies don’t have to make massive layoffs that could lead to a recession.
Labor market flexibility has persisted. Despite the Federal Reserve’s sharp interest rate hikes, the unemployment rate has remained below 4% for the past two years, although it rose slightly in February.
at the same time, canada unemployment rate It was 5.8% in February, an increase of 0.1 percentage points from January. According to statistics, the EU unemployment rate is 6.0% Eurostat.
The U.S. economy’s place on the global stage is also a product of its resilience in the face of geopolitical crises and the unique structure of the U.S. financial system.
For example, as Russia’s invasion of Ukraine disrupted global energy and food prices, the United States was not hurt as much as regions like Europe and Japan, which are more dependent on Russian energy and food imports.
“It’s luck,” Gagnon said.
The resilience of the U.S. economy is also a result of its unique debt structure.
Townhome construction in Mundelein, IL will begin on July 19, 2023.
Scott Olson | Getty Images
U.S. households are more insulated from the global interest rate surge thanks to the implementation of 30-year fixed-rate mortgages, which allowed households to lock in extremely low mortgage rates from the early days of the pandemic. The 30-year mortgage rate is largely unique to the U.S. financial system and protects households when interest rates later rise.
“Our banking system takes on a lot of interest rate risk, but in other parts of the world they push that risk onto households and businesses,” Zandi said. “That’s really important.”
Not yet “free and clear”
While the U.S. economy remains ahead of other developed nations, there is room for setbacks in the recovery.
“I don’t think we can conclude that we’ve had a soft landing and that we’re free and innocent,” Zandi said.
At present, the Federal Reserve remains hawkish on interest rates, despite previous signs that it will cut interest rates three times this year.
President of the Federal Reserve Bank of Atlanta Raphael Bostic now expects only one rate cut this year, likely in the fourth quarter.
“The road is going to be bumpy,” Bostic told CNBC’s “Squawk Box” on Wednesday.
While the path to U.S. economic recovery remains uncertain, experts are optimistic.
“We’re basically at or above where we were before the pandemic hit,” said Gagnon of the Peterson Institute. “So that’s really good.”
Correction: This story has been updated to correct the spelling of Josh Gotbaum’s name. It also provided an update to clarify Dow Jones’s upward revision of its forecast for private sector job growth in March.
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