Several unique characteristics of the US economy have sheltered it from recessionary storms, analysts say. The US government provided about $5 trillion in pandemic aid in 2020-2021, far more than overseas counterparts, which left most households in much better financial shape and supported consumer spending well into 2023.
The Biden administration has also subsidized more construction of manufacturing plants and infrastructure through additional legislation passed in 2021 and 2022 that was still having an impact last year. About one quarter of the U.S. economy’s solid 2.5% growth in 2023 was made up of government spending. Republican critics, however, charge that the extended spending contributed to higher inflation.
“We had some policies that I do think helped us a lot,” said Diane Swonk, chief economist at KPMG. “But also the structure of our economy is so much different.”
Americans have been better protected from rising rates than U.K. counterparts, for example, because most US homeowners with mortgages have long, 30-year fixed rates. As a result, the Federal Reserve’s rapid rate hikes of the past two years — which have lifted mortgage rates from around 3% to about 6.7% — have had little effect on many US homeowners.
Yet their British counterparts carry mortgages that have to be renewed every two to five years. They’ve struggled with rapidly rising mortgage rates as the Bank of England has lifted borrowing costs to combat inflation.
Catherine Mann, a member of the Bank of England’s interest-rate setting committee, said Thursday that the UK economy’s slowdown should be temporary. There are already signs in business surveys that the economy is picking back up, she added.
“The data we have today is rear-view mirror,” she said on the sidelines of an economic conference in Washington. Forward-looking reports “are all looking good.” Like the Fed, the Bank of England is considering reducing its benchmark rate once it is confident inflation is under control.
Another benefit for the United States is that it experienced a surge in immigration in recent years, which has made it easier for businesses to fill jobs, potentially expand their operations, and has led to more people earning wages — and then spending those earnings.
Japan, by contrast, is rapidly aging and has seen its population shrink for years, as it is less open to foreign labor. A declining population can act as a powerful drag on economic growth.
In Europe, consumer sentiment is weak among consumers who are still feeling the effects of higher energy prices caused by the war in Ukraine.
Even China, whose economy is growing faster than the United States’, is under heavy pressure. Its stock markets have been among the world’s worst recently due to worries about a sluggish economic recovery and troubles in the property sector.
The U.S. economy faces its own challenges. Its growth is forecast to cool this year as big hikes to interest rates by the Federal Reserve make their way fully through the system.