“The United States is recording success in solving some of its most stubborn economic problems”

2023-11-03 15:05:41

In October 2022, the Bloomberg agency said it was 100% certain that the United States would experience a recession. The American economy contradicted this prediction, with an annual growth rate of 4.9% in the third quarter, or 1.2% in real rate (adjusted for inflation), a phenomenal result, almost three times higher than which is considered the underlying potential growth rate of the economy. U.S. consumers have driven this growth, increasing their spending at an annual rate of 4%. These are the same consumers who have preserved the American economy from recession for eighteen months by continuing to spend enough to offset the effects of the Federal Reserve’s restrictive monetary policy in several sectors of the economy, including housing.

The job market is also very strong. The unemployment rate is flirting with its lowest rate since the 1970s, there are around two million more jobs than expected before the pandemic and the labor market participation rate continues to increase. After lagging behind inflation for most of 2021 and 2022, wages grew faster than inflation in 2023 and are starting to approach where they would normally be.

The main thorn in the side of the economy is inflation, but the situation has improved, or at least become less worrying. Its twelve-month rate has fallen from its peak of 9.1% to 3.7% over the past year, the lowest figure among the G7 economies. Additionally, twelve-month data provides a distorted view of the pace of inflation: when measured over the past three months, its underlying pace is much lower.

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All this makes the pessimism of households regarding the economic situation all the more incomprehensible. Approval ratings for President Biden’s economic policies are very low and consumer morale is roughly where it was in 2009, when the United States was plunged into recession, with an unemployment rate of 10 %. It is possible that consumers react to non-economic news such as immigration or crime. Perhaps they are worried about high prices or rising mortgage rates. But another possibility is that they are not as pessimistic as they say, since they continue to spend.

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