U.S. economy world’s best; Trump claims ‘cesspool.’ Data is clear

US President Joe Biden delivers a speech on the US economy and his administration’s efforts to revive US manufacturing, during his visit to Flex LTD, a factory that makes solar-powered microinverters, in West Columbia , South Carolina, United States, July 6, 2023.

Jonathan Ernst | Reuters

President Joe Biden is fighting to convince inflation-weary voters that the U.S. economy is healthy.

“America has the best economy in the world,” he told NBC’s Today Show on Monday, making an argument that is at the heart of his re-election campaign.

America’s economic standing in the world is becoming an early flashpoint on the campaign trail, as former President Donald Trump routinely describes the United States as a trade desert.

“We are a nation whose economy is collapsing into a cesspool of ruin,” Trump shouted at a rally in Georgia last month, “whose supply chain is broken, whose stores are not stocked , whose deliveries are not arriving”.

But the numbers paint a different picture, one more in line with Biden’s narrative of American economic dominance than Trump’s apocalyptic warnings.

U.S. gross domestic product was 2.5% in 2023, far outpacing that of other developed economies, according to a January report from the International Monetary Fund. The IMF projects that the United States will maintain this lead in 2024, although it expects GDP to decline to 2.1%.

“The U.S. economy is leading the way in the global economy. It’s driving the global economic train,” Mark Zandi, Moody’s chief economist, told CNBC.

Even as interest rates have risen, the job market has remained strong. In March, private U.S. businesses added 184,000 jobs, payroll processing firm ADP reported Wednesday, well above the Dow Jones estimate of 150,000 jobs. This is the fastest job growth the U.S. economy has seen since July 2023.

The stock market has also made record gains in recent months and housing values ​​have soared, although they have now started to fall as inventory improves.

Besides continuing high prices that are expected to decline in the coming year, Zandi said the fundamentals of the current U.S. economy are almost ideal: “The economy is perfect. It’s hard to argue with that.”

“Politics and Luck”

The recent outperformance of the US economy is the result of several factors.

“It’s both a question of politics and luck,” said economist Joseph Gagnon of the Peterson Institute for International Economics, a Washington think tank.

In response to the economic earthquake caused by the pandemic, the US government injected approximately $4 trillion in stimulus into the economy to support households and businesses.

House Speaker Nancy Pelosi (center) and Reps. Kevin McCarthy (left) and Steny Hoyer present the bill to the press after the House passed a $2 trillion stimulus bill dollars on March 27, 2020, at the United States Capitol in Washington, DC.

Alex Edelman | AFP | Getty Images

“We have had more fiscal stimulus than any other country and that is part of the reason why the United States has recovered better from the Covid depression than any other country,” he said. said economist Josh Gottbaum, a former White House and Treasury Department official in both countries. Democratic Administrations, currently a visiting fellow at the Brookings Institution.

The US stimulus safety net has come at a high cost, leaving the US with a much larger budget deficit than other countries. But it also helped keep the economy afloat, providing a cushion so businesses didn’t have to carry out massive layoffs that could have escalated into a recession.

This resilience of the labor market has remained. The unemployment rate has remained below 4% for the past two years, even though the Federal Reserve has sharply raised interest rates.

The position of the US economy on the global stage is also a product of its resilience in the face of geopolitical crises and the unique configuration of the US financial system.

While Russia’s invasion of Ukraine disrupted global energy and food prices, for example, the United States was not affected as much as countries like Europe and Japan , which are more dependent on Russian imports of energy and food.

“It’s a matter of luck,” Gagnon said.

The resilience of the U.S. economy also results from its unique debt structures.

Townhouses are under construction on July 19, 2023 in Mundelein, Illinois.

Scott Olson | Getty Images

American households were better protected from rising global rates, thanks to the 30-year fixed-rate mortgage, which allowed them to benefit from extremely low mortgage rates from the first days of the pandemic. This 30-year mortgage rate, which is essentially unique to the American financial system, protected households when rates subsequently increased.

“Our banking system bears a lot of interest rate risk, but in the rest of the world they dump it on households and businesses,” Zandi said. “It was really important to go around.”

Not yet “free and clear”

Even though the U.S. economy remains ahead of the rest of the developed world, setbacks are still possible in the recovery.

“I don’t think we can conclude that we’ve landed softly, that we’re free and clear,” Zandi said.

Although inflation has fallen sharply from its 2022 highs, it has risen again in recent months.

For now, the Federal Reserve remains hawkish on interest rates, despite previous indications that the central bank would make three cuts this year.

“When it comes to inflation, it’s too early to tell whether the recent numbers represent more than just an increase,” Federal Reserve Chairman Jerome Powell said Wednesday.

Atlanta Federal Reserve President Raphael Bostic now expects just one rate cut this year, probably around the fourth quarter.

“It’s going to be a bumpy road ahead,” Bostic said Wednesday in an interview on CNBC’s Squawk Box.

And even though the trajectory of the U.S. economy’s recovery remains uncertain, experts remain optimistic.

“We are basically on track, if not above, where we were before the pandemic hit,” said Gagnon, of the Peterson Institute. “So it’s pretty darn good.”


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