While numerous countries globally have faced challenges in recovering from the economic repercussions of the pandemic, the United States has demonstrated remarkable resilience and growth, standing out among advanced economies.
The US economy has shown robust expansion, a strong job market, and decreasing inflation rates, leading to a performance that surpasses European nations and other counterparts. In the last quarter of 2023, the US GDP growth reached 3.3%, significantly exceeding economists’ forecasts of 2%. This strong performance contributed to an overall growth of 2.5% for the year, outperforming all other advanced economies and positioning the US to continue this trend into 2024.
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Economist Ryan Sweet from Oxford Economics notes, “The US is holding up much better than other countries. It seems like the engine of the US economy continues to hum along where it’s sputtering in other nations.” Experts point to several key factors that explain this economic outperformance of the United States.
Massive Economic Stimulus Fuels Demand
The unprecedented economic downturn caused by the Covid-19 pandemic forced governments worldwide to take action to support their populations and economies. In the US, the response was particularly large-scale. In March 2020, the US Congress quickly approved a massive $2.2 trillion stimulus package designed to inject cash directly into the hands of American citizens, families, and businesses. This was followed by additional legislative measures aimed at supporting small businesses and maintaining employment levels.
This historic influx of federal funding into the US economy totaled approximately $5 trillion. The funds reached a wide range of recipients, from individuals receiving an extra $600 per week in unemployment benefits to local and state transit agencies facing financial difficulties due to reduced commuter numbers.
According to Aaron Terrazas, chief economist at Glassdoor, “I think there was a whole generation of policymakers that came out of 2008 and 2009 with the lesson that if you don’t go big and go bold, the problems last for a long time. If you’re tentative, you prolong the pain. So I think that’s one reason why the fiscal response was so much more forceful this time.”
This substantial stimulus is widely credited with sustaining robust consumer spending, which constitutes a significant 70% of the US economic activity. This sustained spending power, even amidst high inflation, has acted as a crucial support for the economy.
Ryan Sweet also highlights that a portion of the stimulus money contributed to increased household savings, creating a financial buffer that Americans could utilize when needed. While other nations like Japan, Germany, and Canada also implemented significant stimulus measures, the sheer size of the US stimulus package dwarfed those of many other countries.
European countries, with their established social safety nets, were able to leverage existing programs without the need for massive spending increases. However, while this offered a short-term advantage, it could not compensate for the vast difference in the scale of economic stimulus compared to the United States.
Labor Market Flexibility and Adaptability
While high inflation has negatively impacted many Americans’ perception of the economy, a robust labor market has bolstered disposable income, which is fundamental to consumer spending. The US unemployment rate has remained below 4% since February 2022, matching historical lows. Despite rising prices, real wages have also increased, with lower-income households experiencing particularly strong real wage growth. Furthermore, the US economy experienced a notable surge in productivity in 2023, achieving its fastest growth rate in years.
Julia Pollak, chief economist at ZipRecruiter, emphasizes the role of flexible labor laws in allowing US companies to rapidly adjust their workforces at the onset of the pandemic. Although this caused immediate hardship for some workers, it enabled companies to adapt swiftly to the changing economic landscape and invest in new technologies and operational models.
She illustrates this with the hotel industry, which implemented significant layoffs and has not returned to pre-pandemic staffing levels. “They’ve simply changed a lot. They’ve introduced self-checkouts and mobile check-in technology. They’ve reduced the frequency of room cleaning, they’ve eliminated room service, because now customers tend to prefer to use Uber Eats anyway, and pick up orders and deliveries.” Pollak argues that these changes have made hotels more efficient and less labor-intensive, ultimately benefiting both businesses and, in the long term, workers through increased productivity and potentially higher wages in the future.
Another advantage for the US labor market is its capacity for replenishment, particularly through immigration. This is especially crucial at a time when the retirement of the baby boomer generation has slowed domestic population growth.
In contrast, European nations often prioritized maintaining employment through government support schemes. The UK’s furlough scheme, for example, paid 80% of employees’ wages for over 18 months. While the US experienced higher unemployment rates initially, the expanded unemployment benefits provided direct financial support to laid-off workers, contributing to consumer spending and economic resilience.
Energy Independence Shields Against Global Shocks
The United States’ position as a net energy exporter is a significant factor contributing to its economic strength compared to other developed economies, especially in Europe.
When Russia’s invasion of Ukraine in February 2022 caused global energy prices to skyrocket, Europe felt the impact far more acutely than the US. Germany, a major European manufacturing powerhouse, heavily relied on natural gas imports from Russia via the Nord Stream pipeline. The energy crisis significantly impacted German productivity and economic output.
The surge in energy prices fueled higher inflation across Europe, creating what experts termed a “double-shock” effect, compounding the economic disruption caused by the pandemic with the energy crisis triggered by the war in Ukraine.
Ben Westmore, who monitors the US economy for the OECD, explains that “The impact of the Ukraine war on energy prices was a lot worse in Europe than in the US.” He notes that gas prices in Europe surged by nearly 20% between early 2021 and 2022, while in the US, the increase was only around 3-4%. Furthermore, European businesses demonstrated a greater tendency to pass these increased energy costs onto consumers, exacerbating inflationary pressures.
“Both of these factors have helped U.S. inflation moderate to a faster extent than in many countries, especially Europe,” Westmore concludes. This relative insulation from global energy price shocks has provided a considerable economic advantage to the United States compared to energy-import-dependent economies.
