For the past year, experts and analysts have expected the U.S. economy in 2023 to take a turn for the worse. Amidst inflationary pressures and rising interest rates, all signs pointed to a reduction in consumer spending. Higher prices and higher cost of debt was expected to deter Americans from purchasing goods and services. But something interesting has happened instead. Consumers in the nation have shown profound resilience, and the U.S. continues to post positive growth figures. Despite indicators to the contrary, economic growth has persisted despite negative U.S. economy predictions. In this regard, the U.S. stands alone when compared to other major economic powers throughout the world.
According to recent growth figures, the U.S. economy in 2023 has effectively attained pre-pandemic numbers. This has not been the case in Europe or Asia as nations here continue to post lower GDP numbers. These nations face the same inflationary and interest rate pressures, but the difference lies in their domestic economic behaviors. Unlike these countries, the U.S. consumer has defied logic and continues to show consistent spending. This alone combined with perceived job security is what has thwarted U.S. economy predictions of recession thus far. But the question is whether this can be sustained into 2024, which will undoubtedly depend on an array of factors.
“Right now, it does seem like we’ve seen a steady amount of economic resilience [from U.S. consumers.]” – Ed Moya, Senior Market Analyst, Oanda brokerage firm
A Positive Q3 for the U.S. Economy in 2023
Recent economic figures were reported for the third quarter regarding the U.S. economy in 2023. Between July and September, GDP increased once again to an annualized 4.3% growth rate. This is noteworthy in that it brings the U.S. economy back to pre-pandemic levels. Similarly, it’s remarkable given the fact that the Fed has dramatically increased interest rates over the course of the last year. Between March of 2022 to this summer, rates went from 0% to 5.5%. Yet despite this, consumer spending has remained strong and driven GDP growth. In fact, the U.S. was the only economic bright spot among global economic leaders throughout the world. Consistently, other nations are struggling with inflation and interests rates, which have stymied economic growth.
In dissecting the figures to a greater extent, personal consumption rates among Americans increased 4% during this last quarter. This index is often used by the Feds to gauge consumer spending because it omits energy and food purchases. Gasoline and food prices can be more volatile, and spending more consistent, which fails to reflect actual consumer behaviors. But personal consumption measures better portray consumer mentalities. And based on these assessments, consumers are still choosing to make discretionary purchases. This is contrary to many U.S. economy predictions. Helping with these trends is a smaller-than-expected rise in the consumer price index. This as well as a continued low unemployment rate likely explains U.S. consumer resilience amidst a less-than-favorable economic climate.
“Additional evidence of persistently above-trend growth, or that tightness in the labor market is no longer easing, could put further progress on inflation at risk and could warrant further tightening of monetary policy.” – Jerome Powell, Chairman of U.S. Federal Reserve
The Impact of Jobs and Infrastructure Investments
One of the reasons the U.S. economy in 2023 remains strong is because of the labor market. Unemployment rates continue to be low, and job opportunities are persistently available. This is evident in employers and their willingness to accommodate worker demands including remote work. The effect of such a strong labor market for consumers is one of perceived job security. When employment is readily available, all other things being constant, consumers are more likely to spend and leverage debt. This appears to be the case among American consumers as they defy U.S. economy predictions. Despite higher prices and rates, consumer resilience has persisted.
At the same time, American investments in its infrastructure has helped fuel job growth as well. The Infrastructure Investment and Jobs Act is investing roughly $1 trillion in infrastructure development. This naturally has a notably impact of employment opportunities and business grants. Other countries including those in Europe and Asia do not have the same luxury of pursuing such projects. In this regard, the U.S. economic strength stands alone. As a result, this legislation along with student debt payment delays is boosting the U.S. economy in 2023. And it’s part of the reasons U.S. economy predictions about a recession have so far fallen short.
“The Fed’s tightening cycle is taking time to hit the real economy, but we believe higher mortgage rate, credit card debt and business-loan defaults will hit growth this quarter.” Anna Wong and colleagues, Economists at Bloomberg
U.S. Economy Predictions
Consumer resilience and the continued growth of the U.S. economy in 2023 has been impressive. Despite significant increases in interest rates and moderate inflation, Americans continue to purchase. As a result, gloomy U.S. economy predictions have yet to come true. A recession has still not occurred by strict definitions in the U.S. even though such pressures are substantial. This is what has made the U.S. a clear outlier current in terms of the global economy. And based on what’s happening elsewhere, many don’t anticipate the good times will keep rolling.
Analysts continue to forecast an eventual recession for the U.S. in the coming quarters. This may not affect the U.S. economy in 2023, but history indicates a downturn of the economy is inevitable. While the Fed hopes for a “soft landing” as it tries to control inflation, the chances of this are low. Avoiding a recession amidst such significant interest rate hikes has never occurred in the past. While these post-pandemic times are indeed unprecedented, this alone is not expected to protect the U.S. from an eventual economic contraction. But for now, such U.S. economy predictions have failed to materialize. And there’s always hope that America’s economic strength might just push us through to better days.