Daily Management Review

According To Biden, The US Economy Is The Best In The World. Trump Refers To It As A "Cesspool." But The Data Is Open


According To Biden, The US Economy Is The Best In The World. Trump Refers To It As A "Cesspool." But The Data Is Open
US President Joe Biden is battling to persuade citizens who are weary of inflation that the US economy is doing well.
He made a statement that is essential to his reelection campaign on Monday, telling NBC's "TODAY" that "America has the best economy in the world."
The United States' economic status is increasingly becoming a topic of contention during the campaign trail, as former President Donald Trump frequently portrays the country as a commercial wasteland.
At a rally in Georgia last month, Trump said, "We are a nation whose economy is collapsing into a cesspool of ruin, whose supply chain is broken, whose stores are not stocked, whose deliveries are not coming."
However, the data presents a different image, one that is more consistent with Biden's thesis of US economic supremacy than Trump's dire predictions.
Although it has increased slightly over the last several months, inflation has decreased significantly from its peak in 2022.
Federal Reserve Chair Jerome Powell stated on Wednesday, "It is too soon to say whether the recent readings on inflation represent more than just a bump."
According to an IMF assessment from January, the United States' gross domestic product expanded by 2.5% in 2023, much faster than that of other major economies. Although it anticipates a decline in the rate to 2.1%, the IMF predicted that the United States would maintain its dominance in 2024.
Germany and Canada, two additional sizable advanced economies, grew their GDP at a negative 0.3% and 1.1%, respectively, in 2023.
"The world economy is following the lead set by the American economy. According to Mark Zandi, chief economist at Moody's, "it's driving the global economic train."
While U.S. inflation continues its erratic decline, statistics in rich economies across the globe are still high. For instance, in 2023 the consumer price index increased by 3.9% in Canada and 5.9% in Germany.
Because different countries compute inflation in different ways, direct comparisons are challenging.
According to Zandi, the United States appears to be doing well in terms of inflation even after accounting for the disparities in the calculations.
“Using the same methodology as let’s say the European Union, the Fed’s already at target, inflation is already below 2%,” he said.
Additionally, the job market has remained robust despite the rise in interest rates. Payroll processing company ADP announced on Wednesday that U.S. private employers gained 184,000 jobs in March, much exceeding the upwardly revised forecast of 155,000 jobs by the Dow Jones. The U.S. economy has not seen employment growth this quickly since July 2023.
Over the previous few months, the stock market has also had record gains, and house values have skyrocketed, albeit they have recently started to fall as stock levels have improved.
In addition to persistently high prices that are expected to decline in the upcoming year, Zandi stated that the current state of the U.S. economy's fundamentals are almost perfect: "The economy is in excellent shape. It's difficult to dispute with it.
The current outperformance of the US economy is the consequence of multiple reasons.
Economist Joseph Gagnon of the Washington, D.C.-based Peterson Institute for International Economics stated, "It's both policy and luck."
The American government responded to the pandemic's economic shock by pumping almost $4 trillion in stimulus money into the economy to help private citizens and small companies.
The U.S. has recovered from the Great Depression more successfully than any other nation, according to economist Josh Gotbaum, a guest scholar at the Brookings Institution and a former Treasury Department official in both Democratic and Republican administrations. "We had more fiscal stimulus than any other country," Gotbaum said.
Due to the high cost of the stimulus safety net, the United States has a far higher budget deficit than other nations. However, it also kept the economy afloat by acting as a buffer, preventing businesses from having to carry out large-scale layoffs that could have triggered a recession.
That labour market toughness has endured. The unemployment rate has not exceeded 4% over the last two years, despite a substantial increase in interest rates by the Federal Reserve in February.
In the meantime, Canada's unemployment rate increased by.1 percentage points from January to 5.8% in February. Eurostat reported that the unemployment rate in the European Union was 6.0%.
The durability of the American economy in the face of geopolitical crises and the distinctive structure of the American financial system have also contributed to its standing on the international scene.
For example, the United States was not as negatively impacted by Russia's invasion of Ukraine as regions like Europe and Japan, who depend more largely on Russian energy and food imports, were.
“That’s the luck part,” said Gagnon.
One reason for the U.S. economy's resiliency is its distinct debt structures.
Because the 30-year fixed-rate mortgage let homeowners to lock in exceptionally low mortgage rates from the early days of the pandemic, U.S. consumers were more protected from surges in global rates. Households were safeguarded when rates subsequently increased by that 30-year mortgage rate, which is primarily exclusive to the American financial system.
“Our banking system takes a lot of interest rate risk, but in the rest of the world, they shove it on to the household, on to businesses,” said Zandi. “That was really important this go around.”
There is still potential for setbacks in the recovery, even while the US economy continues to outperform those of the rest of the developed world.
Zandi stated, "I don't think we can say that we've soft-landed, that we're free and clear."
Notwithstanding prior signals that it would implement three rate reductions this year, the Federal Reserve is still now maintaining a hawkish stance on interest rates.
Raphael Bostic, the president of the Atlanta Federal Reserve, now anticipates just one rate reduction this year, most likely in the fourth quarter.
In a CNBC interview on Wednesday, Bostic stated, "The road is going to be bumpy."
Even though it's still unclear how the US economy will rebound, experts remain upbeat.
“We’re basically on or above the track we were on before the pandemic hit,” said Gagnon, of the Peterson Institute. “So that’s pretty darn good.”