US recovery outperforms rest of world

Falling inflation, rising growth power economy

The European economy, hobbled by unfamiliar weakness in Germany, is barely growing. China is struggling to recapture its sizzle. And Japan continues to disappoint.

But in the United States, it’s a different story. Here, despite lingering consumer angst over inflation, the surprisingly strong economy is outperforming all of its major trading partners.

Since 2020, the United States has powered through a once-in-a-century pandemic, the highest inflation in 40 years, and fallout from two foreign wars. Now, after posting faster annual growth last year than in 2022, the US economy is quashing fears of a new recession while offering lessons for future crisis-fighting.

“The US has really come out of this into a place of strength and is moving forward like COVID never happened,” said Claudia Sahm, a former Federal Reserve economist who now runs an eponymous consulting firm. “We earned this; it wasn’t just a fluke.”

On Friday, President Biden hailed fresh government data showing that annual inflation over the second half of 2023 fell back to the Federal Reserve’s 2 percent target. Coupled with Thursday’s news that the economy grew by 3.1 percent over the past 12 months, the Commerce Department report showed that the United States appears to have achieved an economic soft landing.

The post-pandemic recovery challenged long-standing economic beliefs, such as the idea of an inverse relationship between unemployment and inflation. (As one rose, the other was expected to fall.) Expressed in what economists call the Phillips curve, this nostrum proved nearly useless in explaining the economy’s recent behavior.

Washington’s success in reviving the economy also suggests a new approach to future downturns, one that relies more on the government’s power of the purse and less on the Federal Reserve’s control of the cost of credit.

“Putting money in people’s hands vs. moving around interest rates, which is monetary policy, fiscal policy is going to be stronger,” Sahm said. “We cannot go into the next crisis being, like, ‘Oh, the Fed’s got this.’”

Consumer spending is driving the economy: Real consumption rose by 0.5 percent in December, its fastest pace since last January. Pending home sales jumped, too. Following the flurry of good news, JPMorgan Chase economists said they raised their first-quarter growth forecast.

IBM, Visa, and General Electric last week each reported earnings that topped analysts’ expectations, another sign of the economy’s continued health.

The $28 trillion US economy weathered multiple shocks over the past year and returned to the growth path it was on before the pandemic. The size of the economy, adjusted for inflation, regained its prepandemic peak in early 2021. Through the end of September, it was more than 7 percent larger than before the pandemic. That was more than twice Japan’s gain and far better than Germany’s anemic 0.3 percent increase, according to British Parliament data.

For most Americans, the growth paid off in the form of higher wages. Over the four years through September, the most recent comparison available, US wages — after inflation — grew 2.8 percent.