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The Soft Landing Part 1: The Resilient U.S. Economy

As the global economy embraces an optimistic start in 2024, marked by receding inflation and resilient growth, one nation stands out for its surprising strength – the United States. The aftermath of the pandemic-induced disruptions, coupled with geopolitical tensions, had sent shockwaves across the world in 2021 and 2022, leading many to anticipate painful recessions as central banks raised interest rates to curb inflation.

Contrary to predictions, the United States has not only weathered the storm but has emerged as an economic powerhouse. The International Monetary Fund (IMF) recently upgraded its growth forecast for the U.S. to 2.1 percent, a significant rise from the earlier estimate of 1.5 percent. The resilience of the U.S. economy has left experts puzzled, prompting a closer look at the factors propelling its exceptional performance.

One major contributor to the U.S. economic resilience is its fiscal policy. While many nations grappled with economic downturns, the U.S. government continued to inject funds, with expenditures soaring above 40 percent of overall output. The $5 trillion relief and stimulus package in response to the pandemic, along with ongoing investments in infrastructure and climate initiatives, have provided a continuous economic boost. However, this spending spree comes with a caveat – a growing deficit and potential future costs, including higher interest bills.

While government spending has played a crucial role, it doesn’t fully explain the divergence between the U.S. and other developed economies. The American approach to pandemic layoffs, paying workers to stay home, has led to a unique outcome. Unlike European countries that incentivized retaining jobs, the U.S. emphasis on supporting individuals during disruptions has resulted in a churn where Americans transitioned into new and often better jobs. This strategy may be a key driver behind the stronger productivity growth witnessed in the U.S.

Additionally, the U.S. has been relatively insulated from geopolitical disruptions, especially those related to Russia’s invasion of Ukraine. Unlike Europe, which heavily relied on Russian oil and gas, the U.S. imported less, mitigating the impact of energy price spikes. Recent tensions in the Red Sea affecting global shipping routes have further showcased the U.S.’s resilience, as American supply chains are less susceptible to these disruptions.

In the first part of this series, we’ve delved into the fiscal policies, unique labor market responses, and geopolitical insulation that have propelled the U.S. economy to new heights. In Part 2, we’ll explore how demographic factors and potential challenges in economic policy may shape the future trajectory of the United States in 2024.