(Bloomberg Opinion) -- Economic growth is barely positive in the Eurozone, and the Chinese stock market has been in freefall. But for all its doubters, the US economy and markets continue to shock the world. For a moment at least, that’s worth celebrating.
Gross domestic product expanded at a 3.3% annualized rate in the fourth quarter, exceeding every forecast compiled by Bloomberg and helping validate record stock prices. And it’s largely happened on the back of strong consumption.
Real personal consumption expenditures expanded at a 2.8% annualized pace in the quarter, with about 55% of that coming from services (including dining out, healthcare and recreation) and the balance from goods (clothing, durable goods, etc.)
The numbers cap a year of positive economic surprises that defied predictions of imminent doom with policy rates at two-decade highs. They also show how the legacy of pandemic-era stimulus programs is still being written, with the infamous “stimulus checks” contributing to inflation on the one hand but also catalysing the start of a durable economic expansion. While the former initially got most of the attention, 2023 ended with inflation essentially back at the Federal Reserve’s 2% target and the consumer-driven economy still going strong.
So what happened?
For the past several years, the US economy has traded leadership between goods and services. During the heart of the pandemic, consumers deployed government checks on appliances and personal electronics and the services economy muddled through a deep recession. Having exhausted their need for appliances and TVs, consumers abandoned goods and went all-in on concerts, live sports and dining out from 2021 to early 2023. Finally, by the second half of 2023, our mini “goods recession” had ended but our newly rediscovered love of real-life experiences remained strong.
Admittedly, American consumers will need money if this is going to continue, which means the labour market will have to stay strong and wage increases will have to keep coming in ahead of inflation. For that to happen without juicing future prices too much again, the US needs a sustainable run of strong labour productivity growth, the recipe that fuelled the remarkable growth and stock-market gains of the 1990s. That’s asking for a lot, but it’s hardly out of the question.
In the popular imagination, productivity growth requires rapid adoption of futuristic technologies such as artificial intelligence, but there are still more mundane reservoirs of untapped productivity. Workers hired in the frenzied pandemic and post-pandemic labour markets are maturing into their roles, and employer-employee matching should steadily improve to marry the right opportunities with the ideal skill sets. Meanwhile, strong manufacturing investment fuelled by the Biden Administration’s economic initiatives should also help.
As for companies, there’s hope that they may have taken lessons from the last four years that make them more efficient overall. Among other things, the pandemic experience taught everyone how to use work-from-anywhere technology. In the ensuing months and years, managers have had time to figure out whether office, remote or hybrid work best serves their companies and industries’ objectives and maximizes output. It’s been a rocky experimentation process for some, but those learnings should pay off in the medium-run. So too should the lessons of managing costs through an inflation scare.
This may all read like a lot of wishful thinking, and I understand the sentiment. Among other things, interest rates are still high, and the massive US housing market is still in a strange state of paralysis. You also can’t write off the possibility of a resurgence in inflation amid Houthi militant attacks in the Red Sea, especially if the recent surge in freight costs is sustained.
But at present, the US consumer story is trouncing the inflation story and making America look like a star on the world stage. For a moment, let’s all live in the present and celebrate that.
Jonathan Levin is a Bloomberg Opinion columnist. Views do not represent the stand of this publication
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