Broker Check

Why Has the United States Economy Outperformed?

March 12, 2024

                The United States economy rose 3.2% in the fourth quarter of 2023 on a year-over-year basis according to the Bureau of Economic Analysis. Many forecasters and market participants worried about the possibility of a recession in 2022 and 2023, but it never happened. According to reported data, the economy got stronger as 2023 progressed.

                It was a different story overseas. In Japan, the third quarter of 2023 saw real GDP fall 0.8% while in the fourth quarter, GDP barely grew 0.1% according to the Economic and Social Research Institute of Japan. Meanwhile, the German Statistical Office reported that real GDP declined 0.2% on a year-over-year basis in the fourth quarter. China reported positive GDP growth, but nobody believes their data and the economy is stagnant at best by all indications. These three countries account for approximately twenty-five percent of global GDP which is the same weight as the United States, yet they are either in recession or close to it while the United States thrives.

                There are several potential reasons for this divergence. The United States has better demographics than most large economies, and NPP believes that this has helped the United States compared to the rest of the world. America is also energy independent. The shale revolution shifted the United States from being a net consumer of energy to a net producer. Higher oil prices have not hurt the economy, despite hitting lower-end consumers hard. This is not the case for countries like China, Japan and Germany who must import much of the energy that they consume. Another contributing factor could be that the United States budget deficit is large as a percentage of GDP. However, it is not so large that it explains the divergence between it and other developed economies in our opinion.

                Another explanation is that capital investment, including AI, has been robust. People can debate the valuation multiples of technology stocks, but it is undeniable that they are growing rapidly and faster than the rest of the economy. America’s entrepreneurial spirit has generated several trillion-dollar technology companies and many worth hundreds of billions of dollars. No other economy can say this. Some combination of an entrepreneurial culture, a younger workforce, and more regulation overseas contributed to the outcome.

                The dynamism and flexibility of the United States’ economy has been underestimated and our competitive advantages remain. This does not ensure that we will avoid a recession this year. Sometimes the economy looks strongest before tipping into recession. In fact, there are recessionary economic indicators flashing red now. Even if the United States were to tip into a recession, it is likely the economy would still decline a lesser percentage than most major economies abroad.