In 2023, in the face of the challenges of economic recovery in the post-pandemic era, as well as geopolitical risks such as the Russia-Ukraine, Kazakh-Israeli conflicts, and Sino-US tensions, the pressure on global economic growth will be obvious. Talk of a collapse in the U.S. economy has been rampant, but the U.S. economy has continued to improve this year, with strong indicators of economic growth, easing inflation and employment resilience, far exceeding expectations. There are different opinions on how to interpret this.
In 2024, the United States will usher in ** again, and the economic performance of the United States under Biden is undoubtedly closely related to the election situation. For months, Biden has been betting on the prospect of a "soft landing" for the economy in anticipation of the 2024 election. The recent signal from the Federal Reserve that it will consider cutting interest rates next year also seems to support Biden's optimism about the U.S. economy**. What has been the actual state of the U.S. economy over the past year?How will the current state of the economy and expectations affect the election?
2023 U.S. Economic Inventory:
The expectation of economic collapse in the United States and the reality of acceleration
A year ago, the market and observers from all walks of life had quite negative expectations for the U.S. economy in 2023, with many scholars and news** expecting a recession. Last October, the Bloomberg economic model even said that the U.S. economy had a "100% chance of falling into a recession" over the next 12 months. Before the midterm elections last November, Biden repeatedly said that the United States would avoid a recession and that any recession would be "very mild", trying to reassure Americans that the economic fundamentals under his leadership were solid. But at least in 2022, issues such as high inflation and debt have led to a general lack of confidence in the U.S. economic outlook.
However, looking at the actual data,In 2023, the U.S. economy has far outperformed expectations in three key dimensions: economic output growth, labor market resilience, and inflation slowdown, demonstrating the resilience of the economy。Wall Street reported that economists have become optimistic about the U.S. economy. They now believe that a recession will be avoided;Wall Street is also increasingly optimistic that the Fed may be able to successfully achieve an "elusive" "soft landing", that is, through rational tightening policy, so that the excessively fast growth rate can smoothly fall to an appropriate rate, and avoid large-scale deflation and unemployment.
The actual performance of the U.S. economy compared to a year ago**.
Source: White House official website.
In terms of economic growth, real GDP growth has even surpassed some of the pre-pandemic levels, including the Congressional Budget Office and the International Monetary Organization. This month, Fitch Ratings reported 2023 global economic growth** from 25% to 29%, of which the United States increased by 04 percentage points to 24%；Global economic growth** for 2024 has been revised upwards by 02 percentage points, the increase in the United States was 09 percentage points to 12% (recession avoided). The latest World Economic Outlook (WEEO) released by the International Monetary Organization also attributes the improved global outlook in part to the strength of the U.S. economy. Despite the just-released final economic revision for the third quarter of 49% is down from the previously announced 52% and Dow Jones economists expected 51% increase, but still the fastest pace since the fourth quarter of 2021.
The exceptionally strong labor market has led to equally impressive employment figures. The unemployment rate in the third quarter was 37%, well below the expected 44%, which is due to the boost to the job market due to the expansion of the labor force**. The labor force participation rate in the prime of life is at a 20-year high, while at the same time generating huge income growth for American households, with disposable income rising by 38%。The White House credits it for the "14 million jobs created" since Biden took office, providing opportunities for wage earners, boosting total spending to drive positive growth outcomes, and reversing the market's recessionary calls. The low unemployment rate that has persisted since 2022 is an economic achievement that Biden is proud of, but logically, good employment and inflation go hand in hand. Biden's active promotion of using expanded fiscal investment to boost economic growth and employment has played a role in fueling inflation. The Fed has raised interest rates 11 times in the rate hike cycle that began in March 2022, and inflation has reached a four-decade high. High inflation has been an inescapable shadow of impressive economic growth and low unemployment.
The latest data for the third quarter of 2023 shows a turnaround, with inflation growth slowing significantly. The latest data released by the Bureau of Economic Analysis on Friday showed that the Fed's favorite measure of inflation, the Personal Consumption Expenditures** Index (PCE), fell by 01%, an increase of only 2 year-on-year6%；The Core Personal Consumption Expenditures Index (Core PCE), which excludes volatile food and energy, grew 3% year-over-year2%。It is quite close to the 2% annual inflation target set by the Fed when it adjusted interest rates. Gus Faucher, chief economist at PNC Financial in Pittsburgh, Pennsylvania, said: "This is a significant improvement considering that core inflation started 2022 at an annualized rate of 6. Based on this situation, analysts believe that the Fed will "loosen the economic brakes" and pivot to ** in the event that inflation develops as expected. The Federal Reserve's last monetary policy meeting of 2023 last week confirmed this expectation, announcing that it would maintain the target range for the federal interest rate at 525% to 55% is unchanged. Fed Chair Jerome Powell welcomed the current trend of slowing inflation, calling it "very good news" while saying that "policy rates have reached or are close to the peak of the tightening phase".
Month-to-month change in PCE vs. core PCE over the past year.
Source: U.S. Bureau of Economic Analysis.
Consumption and investment are expanding together
The effectiveness of "Bidennomics" or the deformed prosperity?
As for the growth momentum of the U.S. economy to achieve prosperity in 2023, the White House attributes it to three aspects: consumption, business investment, and fiscal expansion. The World Economic Outlook released by the International Monetary Organization** also judged that business investment in the United States is strong and consumption is resilient. This provides a solid foundation for the resilience of the U.S. economyAnd this part of the progress also seems to be in line with Biden's long-preach economic strategy of "center-out, bottom-up" and "investing in the United States".
Consumer spending accounts for an average of two-thirds of U.S. GDP, so the economy's strong performance is inseparable from continued growth in consumer spending. Real consumer spending growth was nearly 2 percentage points higher than expected in October last year (2.).4% vs. 05%), after the latest data showed retail sales growth in November also exceeded expectations, while single-family housing starts and building permits hit 1-1 2-year highs. This is inseparable from a positive job market, including a continued decline in the unemployment rate and an increase in wages. From January 2021 to October 2023, the average U.S. wage and salary increased by nearly 1$50,000. According to the U.S. Census Bureau (U.Cs.Census Bureau), wages and salaries increased by 46%。The U.S. Labor Department reported a weaker-than-expected increase in weekly jobless claims on Thursday, and a Conference Board survey on Wednesday showed that the proportion of consumers who believe jobs are plentiful reached a five-month high in December.
Wage growth rate vs. CPI growth rate change.
Source: White House official website.
The tight alignment between labor market incomes and consumer spending can be seen as evidence that high inflation is easing and that it is expected to achieve a rare soft landing from high price growth without falling into recession. However, compared with the dazzling data, the public's ** is not optimistic. From 2022 to the first half of this year, persistently high inflation-induced prices** and the Federal Reserve's interest rate hikes have pushed up borrowing costs to put a direct strain on people's lives, especially for major budget categories such as housing. While the Democrats can cite data to prove that wage growth has outpaced inflationary expansion, good overall economic performance for the population does not directly equate to tangible pockets. U.S. Department of Labor (U.D.)s.Labor Department) shows that oil prices are finally starting to kick in**, but some costs, including eating out, car insurance and cars, remain high. **Coverage of inflation has also been mostly negative. While inflation has been a talking point for the past few years, it may take some time for people to feel the real sense of rising incomes and cooling inflation.
The role of investment in stimulating the economy is one of Biden's proud "achievements", which stems from the three important bills promoted by Biden: the Infrastructure Investment and Jobs Act, the CHIPS and Science Act, and the Inflation Reduction ActAt its core, it is to promote public investment through industrial policy, foster clean energy, semiconductor production, and other priority industries that are critical to "future development, resilience, and security," strengthen U.S. industry, and attract private capital. Biden said he expects the total investment in public and private capital triggered by the three bills in the United States to reach about 3$5 trillion. Private non-residential investment growth in 2023 is 37%, well above expectations of 02 per cent, most of which is invested in industrial production, which will continue to contribute to future growth, domestic job creation and productive capacity.
However, this also means a significant expansion of the fiscal deficit. The fiscal deficit in fiscal year 2023 roughly doubled to $1 billion from $950 billion in 2022$84 trillion, or 74%。The budget issue has become one of the main points of contention between the two parties. On November 15 this year, the U.S. Senate voted 87 to 11 to pass a temporary spending bill, ending the third fiscal impasse in a year and avoiding a shutdown. The impasse has brought Washington's more than $31 trillion debt to the brink of default.
Fiscal deficit as a percentage of GDP in FY2022 vs. FY2023.
Source: Brookings Institution.
The U.S.'s expanding fiscal deficit and debt problems have raised international market concerns about its fiscal expectations. In August, Fitch downgraded the US Long-Term Foreign Currency Issuer Default Rating (IDR) to AA+ from AAAIn November, Moody's also downgraded its U.S.** rating outlook to negative from stable. The Brookings Institution believes that the recent increase in deficits has not fundamentally changed the fiscal outlook of the United States. Much of the increase in deficits is caused by temporary or one-off factors that have been offset by inflation and strong growth, keeping debt-to-GDP relatively stable. However, this depends on productivity growth, otherwise persistently high interest rates could exacerbate fiscal sustainability challenges, potentially raising questions about the economic impact, potential tax implications, and impact on investors. This could weaken U.S. economic growth, limit the ability to spend on important items, and increase the likelihood of a financial crisis.
An uncertain "soft landing":
Economic outlook for 2024 and the challenges of an election year
Faced with the pressure of an approaching election year and the many uncertainties in 2024, Biden clearly wants to use the past year's impressive economic "report card" as a selling point. For months, Biden has been betting on a "soft landing" as a fundamental feature of his economic record, heading into the 2024 election with optimistic economic expectations.
Joe Biden speaks about the U.S. economy at the White House Auditorium in Washington, U.S., Oct. 26, 2022.
Source: Reuters.
Democrats in the Joint Economic Committee of the US Congress want to shift the conversation to economic indicators such as slowing inflation growth and declining unemployment, because the American public's perception of the economy will play an important role in whether Biden can be re-elected next year. However, a White House** told Politico magazineIt doesn't matter what economic indicators determine whether there will be a "soft landing", what matters is how people actually perceive the economy. But this is also a dilemma that Biden is currently struggling to get out of – even if the possibility of a soft landing is considered great. Alec Philps, chief U.S. economist at Goldman Sachs, said in an interview that "from a political point of view, 2. .5% inflation and 3A 5% inflation rate may not make much difference. ”
So far, while the economy has remained largely resilient, Americans' views of the economy have been mostly negative. While the vote will take place in November, people's views on the economy tend to be determined early next year. Lael Brainard, chairman of the White House National Economic Council, also acknowledged that while financial markets present a more positive outlook for future economic development, it will take some time for people to feel more economically safe. And ** is trying to reverse its low approval rating for the way the economy is handled. Reuters An Ipsos poll conducted this month showed that about 45% of U.S. adults think the former Trump is doing better with the economy, while 33% think Biden is doing better, and the rest of those who participated in the survey said they are unsure.
**The outlook is still uncertain, and whether the economy can achieve a "soft landing" as Biden wishes depends on the Federal Reserve's monetary policy arrangements, as well as global economic growth, ** chain and many other factors.
The Federal Reserve's last monetary policy meeting of 2023 last week seems to echo Biden's "soft landing" expectations to some extent. With significant progress in inflation and the enormous pressure on people, especially low-income households, the Fed has also shifted its outlook for inflation, saying that "the policy rate has reached or is close to the peak of the tightening phase", suggesting that interest rates have peaked and the center of the policy debate has shifted from raising interest rates to cutting interest rates. In the economic outlook, the median policy rate for participants** by the end of 2024 is 46%。With the usual 0At 25%, this is equivalent to three rate cuts.
However, all this is still undecided. Powell warned that the Fed will still raise interest rates again if the inflation problem returns. John Williams, president of the Federal Reserve Bank of New York, also said in an interview with the U.S. Consumer News & Business Channel on Friday that it was too early to consider cutting interest rates in March next year. This is seen as pouring cold water on the prospect of a Fed rate cut early next year, suggesting that the market is overreacting. He said the Fed's immediate concern remains on whether monetary policy has been tightened sufficiently to ensure that inflation falls back to 2%. The Fed will continue to pivot on the data basis and is prepared to tighten policy again if the trend of easing inflation reverses. Williams is the first Fed to make a public statement after Powell's press conference, and analysts point out that the Fed generally arranges for the head of the New York Fed to come forward to "clarify" information. In other words, the Fed is not sure that it will be able to cut interest rates in March next year. At the same time, market analysis warns of the risks of overbetting on a soft landing for the U.S. economy.
Considering the impact of the Fed's policy on the economic situation and even the election next year, Powell stressed at the latest press conference that politics will not be a factor for the Fed to consider. "We don't think about politics," he said. "When we think the time is right, we do what we think is good for the economy. That's what we've been doing. But he also made it clear that maintaining the soft landing that Biden and others have been trying to achieve is also an important consideration for the Fed.
Biden claims to respect the Fed's independence and rarely comments on monetary policy. But during a visit to Las Vegas earlier this month, he said he "discouraged the Fed from raising interest rates." Obviously,If the current U.S. economic data can maintain the stable growth of employment, wages**, and low inflation, and successfully achieve a soft landing and avoid a recession, the economy will be maintained until **. This is undoubtedly extremely important for Biden, who is under the pressure of an election year.
From the perspective of global economic expectations, 2024 will face inflation, weak growth and other problems are not optimistic, tightening financial conditions, weak growth, and declining business and consumer confidence will lead to a slowdown in growth. The World Economic Forum** says recession risks are increasing in the UK, EU and Japan. The ongoing Russia-Ukraine conflict and the heightened geopolitical tensions caused by the Kazakh-Israeli conflict pose greater risks to finance and commodities**. For the United States, Biden's industrial policy is directly related to foreign trade and industrial chains, which may have an impact on the U.S. economy in 2024 and the politics of the election year.
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