U.S. President Joe Biden delivers remarks on the U.S. economy and his administration’s efforts to improve the American economy during his visit to Flex LTD, a factory that makes solar energy microinverters, in West Columbia, South Carolina, U.S., July 6, 2023 Revitalize manufacturing.
Jonathan Ernst | Reuters
President Joe Biden is struggling 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” on Monday, making an argument central to his re-election campaign.
America’s economic position in the world is becoming an early flashpoint in the election campaign, with former President Donald Trump routinely portraying the United States as a commercial wasteland.
“We are a nation whose economy is plunging into a cesspool of ruin, whose supply chain is disrupted, whose supplies are not filled, whose deliveries are not coming,” Trump shouted at a rally in Georgia last month.
But the numbers paint a different picture, one more consistent with Biden’s narrative of America’s economic dominance than Trump’s apocalyptic warnings.
Inflation has fallen sharply from its 2022 highs, although it has risen again in recent months.
“As far as inflation is concerned, it is too early to say whether the recent readings represent more than just an increase,” Federal Reserve Chairman Jerome Powell said on Wednesday.
According to a January report from the International Monetary Fund, U.S. gross domestic product grew 2.5% in 2023, significantly outpacing that of other developed economies. The IMF forecasts the U.S. will maintain that lead in 2024, but expects it to decline to 2.1%.
“The US economy is leading the way for the global economy. It drives the train of the global economy,” Moody’s chief economist Mark Zandi told CNBC.
Even as interest rates soared, the job market remained strong. U.S. private companies added 184,000 jobs in March, payroll company ADP reported Wednesday, well above the Dow Jones estimate of 150,000 jobs. It is the strongest job growth the US economy has seen since July 2023.
The stock market has also posted record gains in recent months and property values have soared, although they are now starting to fall as inventory levels improve.
Aside from continued high prices, which are expected to cool in the coming year, Zandi said the fundamentals of the current U.S. economy are close to ideal: “The economy is perfect. It’s hard to argue against that.”
More CNBC coverage of the U.S. economy
“Politics and Happiness”
The recent outperformance of the US economy is the result of several factors.
“It’s both politics and luck,” said economist Joseph Gagnon of the Peterson Institute for International Economics, a think tank based in Washington, DC
In response to the economic quake caused by the pandemic, the US government has pumped around $4 trillion in stimulus into the economy to support individual households and businesses.
U.S. Speaker of the House Nancy Pelosi (center) and Representatives Kevin McCarthy (L) and Steny Hoyer show the bill to the press after the House of Representatives approved a $2 stimulus package at the U.S. Capitol on March 27, 2020 in Washington, DC Trillions of US dollars had passed
Alex Edelman | AFP | Getty Images
“We’ve had more fiscal stimulus than any other country and that’s one of the reasons the U.S. has recovered from the Covid depression better than any other country,” said economist Josh Gottbaum, a former White House and Treasury Department official in both the Republican and Democratic administrations and is currently a visiting scholar at the Brookings Institution.
America’s economic safety net came at a high price, resulting in the U.S. running a much larger budget deficit than other countries. But it also kept the economy afloat by providing a cushion so companies didn’t have to carry out mass layoffs that could have led to a recession.
The resilience of the labor market has remained. The unemployment rate has remained below 4% for the past two years despite the Federal Reserve sharply raising interest rates.
The position of the US economy on the world stage is also a result of its resilience to geopolitical crises and the unique structure of the American financial system.
For example, because Russia’s invasion of Ukraine sent global energy and food prices spiraling, the United States was not hit as hard as areas like Europe and Japan that rely more heavily on Russian energy and food imports.
“That’s the luck part,” Gagnon said.
The resilience of the US economy is also due to its unique debt structures.
Townhouses are built in Mundelein, Illinois on July 19, 2023.
Scott Olson | Getty Images
U.S. households were better protected against global interest rate spikes because of the 30-year fixed-rate mortgage, which has allowed households to lock in ultra-low mortgage rates since the early days of the pandemic. This 30-year mortgage rate, largely unique to the U.S. financial system, protected households when interest rates later rose.
“Our banking system takes a lot of interest rate risk, but in the rest of the world they pass it on to households and businesses,” Zandi said. “That was really important this round.”
Not “free and clear” yet.
Even as the U.S. economy continues to outperform the rest of the developed world, there is still room for setbacks in the recovery.
“I don’t think we can come to the conclusion that we landed softly, that we are free and clear,” Zandi said.
For now, the Federal Reserve remains hawkish on interest rates, despite earlier signs that the central bank would make three rate cuts this year.
Atlanta Federal Reserve President Raphael Bostic now expects only one rate cut this year, probably toward the end of the fourth quarter.
“The road is going to be bumpy,” Bostic said in an interview on CNBC’s “Squawk Box” on Wednesday.
And although the path of the US economy’s recovery is still uncertain, experts are optimistic.
“We are essentially at or above where we were before the pandemic hit,” said Gagnon of the Peterson Institute. “So this is pretty damn good.”
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2024-04-04 15:20:11
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