Comparatively Strong U.S. Economic Growth Since 2018
May 16, 2024
A series of shocks have slammed world growth over the past 6-7 years — deglobalization, the Covid-19 pandemic, Russia’s invasion of Ukraine, restrictive monetary policy to counter inflation, and the Israeli-Gaza war. The United States economy has weathered these storms comparatively well. Prior to Covid, real GDP in the U.S. averaged 2.75% per annum in 2018-19 versus 1.1% per year in Euroland, zero percent in Japan, and -0.1% in Great Britain. All four economies contracted in 2020, but the 2.2% drop of U.S. GDP was less pronounced than the GDP plunges that year of 10.4% in the U.K., 6.1% in the euro area, and 4.1% in Japan.
In the two years of 2021-2022 as social distancing restrictions were lessened, GDP rebounded around the world. By combining what happened in those two years with the hit taken in 2020, one gets a relative sense of how different economies handled the immediate entry and exit from Covid’s shock to their systems. Euroland GDP expanded 1.1% on balance over those three years, while the down-move and subsequent rebound in the economies of Great Britain and Japan essentially netted out to a 3-year zero rate of growth. With average economic growth of 1.8% in 2020-22, the United States clearly outpaced growth in other major industrialized economies, just as it had prior to the Covid shock.
The picture of U.S. strength doesn’t change when one examines the most recent period. In the year between the first quarters of 2023 and 1Q 2024, U.S. GDP climbed 3.0%, whereas year-0n-year growth in Euroland, Great Britain and Japan respectively printed at 0.4%, 0.2% and -0.2%.
What about China? It’s 5.3% increase in GDP during the year between the first quarters of 2023 and this year comfortably exceeded the pace of all the above economies. But China is experiencing a significant secular slowdown even if one makes the dubious presumption that the reported figures provided by President Xi’s government are accurately representative. In 2008-2011 before Xi assumed power and while net U.S. annual GDP growth averaged only 0.4%, Chinese GDP expanded at a 9.8% annualized rate. That resilience was really impressive for a period that included the world’s Great Recession. Chinese annual growth slowed to 6.3% by 2018-19 and was only 3.9% in 2021-22.
With less than a half year before the U.S. 2024 presidential election, opinion polls repeatedly signal that President Biden isn’t getting credit for the comparatively robust growth in U.S. GDP, and that feedback now is little different from what voters were conveying six months ago. The learned lesson is that voter support or displeasure for government handling of the economy is far more sensitive to inflation than economic growth, and that takeaway isn’t a peculiar anomaly found recently, either. People still vividly remember the high inflation during the presidency of Jimmy Carter, but forget and in fact never appreciated the comparatively robust 3.2% per annum growth in U.S. GDP during his presidency.
The things a political leader can control have much more influence upon economic growth than inflation. The current force behind the upsurge in 2021-23 had much more to do with supply than demand. The imbalance was experienced in many countries and caused by decisions necessitated by the first global-wide pandemic in a century. In late 2022, U.S. CPI inflation actually peaked at a lower level (9.1%) than the high points reached in Great Britain of 11.1% and Euroland of 10.6%. Of possible particular trouble for Biden from a political standpoint, the latest on-year rise of U.S. inflation of 3.4% is now somewhat above the British and euro area levels of 3.2% and 2.4%. U.S. inflation may have crested at a lower level, but it has receded less sharply than in Europe.
In Japan’s case, inflation crested at 4.3% and has fallen to 2.7%, but U.S. voter feedback suggests that people would be dissatisfied even if inflation were now as low as zero percent. Their sense of price stability is not attuned to the rate of price movement but rather to price level, so satisfaction only will be expressed if prices had dropped over 5% from their peak levels. That was always an extraordinarily remote scenario and would have been accompanied by years of collateral damage. Just ask the Japanese about their lost decades.
Copyright 2024, Larry Greenberg. All rights reserved. No secondary distribution without express permission.
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