The American economy has managed to recover from the effects of the pandemic more strongly than other countries.
Countries around the world have struggled to recover from the economic effects caused by the pandemic, but one of them has managed to emerge with great strength.
With a rapidly growing economy, a strong job market and declining inflation, the United States has outpaced other countries.
In terms of GDP, the United States recorded growth of 3.3% in the fourth quarter of 2023, far exceeding economists’ expectations of 2%.
This brought the US economy’s growth to 2.5% for the year, outpacing all other advanced economies. And in good condition to repeat the feat in 2024.
“The United States is holding up much better than other countries,” says Ryan Sweet, chief economist at Oxford Economics. “It seems that the engine of the American economy is still running, but not in other countries.”
Experts say there are several reasons for this.
1. Stimuli worth billions into the economy
When the pandemic shut down in-person work and social life, countries struggled to figure out how to support their citizens stuck at home, including many who lost their jobs or were unable to work.
In March 2020, the U.S. Congress passed a $2.2 trillion economic stimulus bill that puts money in the pockets of American workers, families, and businesses. Two other laws have helped keep small businesses afloat and workforces employed.
This was the largest injection of federal money into the U.S. economy in history. About $5 billion was funneled to everyone from individuals earning an extra $600 in weekly unemployment benefits to state and local transportation agencies strapped for cash due to a lack of ridership.
“I think a whole generation of lawmakers learned in 2008 and 2009 that if you’re not big and bold, the problems are going to be long-lasting,” said Aaron Terrazas, chief economist at Glassdoor, in reference to the economic crisis of those years.
“If you hesitate, it will prolong the suffering. That’s one of the reasons why the fiscal response was much more forceful this time.”
This stimulus has helped support consumer spending, which accounts for 70% of economic activity. This spending capacity, despite high inflation, gave a boost to the economy.
Some of the money put in families’ pockets ended up in savings accounts, Ryan Sweet says. And that’s a jackpot that Americans can use when they need it.
The size of the US stimulus has exceeded that of other countries, although some such as Japan, Germany and Canada have also done something similar.
European countries have a stronger social safety net than the United States and have been able to adapt existing programs without excessively increasing spending. But this advantage cannot compensate for the huge gap in the size of the stimulus.
2. Flexible labor market
High inflation has been a painful experience for many Americans and is affecting their outlook on the economy. But the strong job market has helped generate income, which is the driver of consumer spending.
The U.S. unemployment rate has been below 4% since February 2022, at historic lows. And although prices have risen significantly, real wages have also grown. Low-income families have seen some of the largest gains in real wages.
The United States also saw productivity increases in 2023, growing at the fastest pace in years.
Julia Pollak, chief economist at ZipRecruiter, highlights the role of flexible labor laws that allowed companies to reduce workforces early in the pandemic. This caused short-term suffering for workers, but allowed companies to adapt to the new moment and invest in new technologies.
He cites the example of hotels, which have laid off workers and not rehired them at pre-pandemic levels.
“They just changed a lot. They introduced self-checkout and mobile check-in technology. They reduced the frequency of room cleaning, they eliminated room service, because now customers tend to prefer to use Uber Eats anyway and place delivery orders.”
Hotels have become lighter, leaner and have fewer staff, she said, a change that she says benefits workers in the long run.
The United States benefited from another advantage: the ability to replenish its labor market, especially through immigration, at a time when the baby boom generation was beginning to retire.
European countries have agreed to pay companies to keep workers on payroll during the quarantine. In the UK, the government paid employees 80% of their salary over 18 months.
As a result, the United States had a deeper jobs crisis, but laid-off American workers were entitled to higher unemployment benefits that sent money directly into their pockets.
3. Energy independence
The United States is an energy exporter. Experts say this has helped strengthen the American economy.
When Russia invaded Ukraine in February 2022 and energy prices skyrocketed, Europe absorbed the impact of that surge far more than the United States. Germany, a major European industrial center, imported much of its natural gas from Russia via the Nord Stream pipeline. Their productivity has been severely affected.
Rising energy prices have pushed up inflation in Europe. Experts called it a “double shock”: first the pandemic and then Ukraine.
The impact of the war in Ukraine on energy prices has been much worse in Europe than in the United States, says OECD analyst Ben Westmore.
Gas prices in Europe between the beginning of 2021 and 2022 increased by something close to 20%, while in the United States they only increased by 3% to 4%.
He points out that European countries have not only seen greater price increases, but also a greater propensity on the part of companies to pass this inflation on to consumers.
“Both factors have helped inflation in the United States fall faster than in many countries, especially in Europe,” he said.
Source: Terra
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