NEW YORK — As some of the world’s biggest economies stumble into recession, the United States keeps chugging along.
Both Japan and the United Kingdom said Thursday their economies likely weakened during the final three months of 2023. For each, it would be the second straight quarter that’s happened, which fits one lay definition for a recession.
Yet in the United States, the economy motored ahead in last year’s fourth quarter for a sixth straight quarter of growth. It’s blown past many predictions coming into last year that a recession seemed inevitable because of high interest rates meant to slow the economy and inflation.
Give much of the credit to U.S. households, who have continued to spend at a solid rate despite many challenges. Their spending makes up the majority of the U.S. economy. Government stimulus helped households weather the initial stages of the pandemic and a jump in inflation, and now pay raises are helping them catch up to high prices for the goods and services they need.
On Thursday, a report showed that fewer U.S. workers filed for unemployment benefits last week. It’s the latest signal of a remarkably solid job market, even though a litany of layoff announcements has grabbed attention recently. Continued strength there should help prop up the economy.
But, for now, the outlook continues to appear better for the United States than many other big economies. The mood on Wall Street is so positive that the main measure of the U.S. stock market, the S&P 500 index, topped the 5,000 level last week for the first time.
“First and foremost, it’s important to emphasize that the market’s performance is more a reflection of a thriving economy rather than unwarranted ‘animal spirits’ from investors,” according to Solita Marcelli, chief investment officer, Americas, at UBS Global Wealth Management.
When it upgraded its forecast for global growth in 2024 a couple weeks ago, the International Monetary Fund cited greater-than-expected resilience in the U.S. economy as a major reason.
Several unique characteristics of the U.S. economy have sheltered it from recessionary storms, analysts say. The U.S. government provided about $5 trillion in pandemic aid in 2020-2021, far more than overseas counterparts, which left most households in much better financial shape and supported consumer spending well into 2023.
The Biden administration has also subsidized more construction of manufacturing plants and infrastructure through additional legislation passed in 2021 and 2022 that was still having an impact last year. About one quarter of the U.S. economy’s solid 2.5% growth in 2023 was made up of government spending. Republican critics, however, charge that the extended spending contributed to higher inflation.
“We had some policies that I do think helped us a lot,” said Diane Swonk, chief economist at KPMG. “But also the structure of our economy is so much different.”
Americans have been better protected from rising rates than U.K. counterparts, for example, because most U.S. homeowners with mortgages have long, 30-year fixed rates. As a result, the Federal Reserve’s rapid rate hikes of the past two years — which have lifted mortgage rates from around 3% to about 6.7% — have had little effect on many U.S. homeowners.
Yet their British counterparts carry mortgages that have to be renewed every two to five years. They’ve struggled with rapidly rising mortgage rates as the Bank of England has lifted borrowing costs to combat inflation.
Catherine Mann, a member of the Bank of England’s interest-rate setting committee, said Thursday that the U.K. economy’s slowdown should be temporary. There are already signs in business surveys that the economy is picking back up, she added.
“The data we have today is rear-view mirror,” she said on the sidelines of an economic conference in Washington. Forward-looking reports “are all looking good.” Like the Fed, the Bank of England is considering reducing its benchmark rate once it is confident inflation is under control.
Another benefit for the United States is that it experienced a surge in immigration in recent years, which has made it easier for businesses to fill jobs, potentially expand their operations, and has led to more people earning wages — and then spending those earnings.
Japan, by contrast, is rapidly aging and has seen its population shrink for years, as it is less open to foreign labor. A declining population can act as a powerful drag on economic growth.
