Good news for Americans, but especially for the re-election campaign of Joe Biden in a fight this year to beat Donald Trump: the United States economy grew in the last quarter of 2023 by 3.3%, more than expected, and steered clear of recession fears by painting an optimistic picture of consumers and businesses in a crucial election year.
Biden’s hope is that these numbers break the strange paradox that occurs in the country: the post-pandemic United States economy is performing much better than in the rest of the global powers, but Americans still don’t perceive it that way and they blame the president for poor performance in that key area.
According to the Bureau of Economic Analysis, the US GDP grew in the last three months of the year faster than many experts had anticipated, at an annual rate of 3.3 percent, which gives an annualized rate of 2.5% by 2023. Even if measured from December 2022 to December 2023, the figure gives a 3.1 expansion, a number that the White House celebrated.
This is a sign that the government, along with the Federal Reserve’s rate policy, managed to reduce inflation and ensure a “soft landing” without major repercussions for the economy or for workers, since unemployment still remains at low levels, 3.7%.
Inflation fell rapidly from a peak of 9.1% annually in June 2022 at 3.4% annualized last month and there are signs that it continues to fall: prices rose at an annual rate of 1.7% in the last three months of 2023, even below the long-term Fed policy goal of 2 percent.
“It’s hard to imagine how things could look better for the soft landing,” Brian Rose, senior economist at UBS, told The New York Times. “Looking back at last year, the combination of growth and inflation that we had was not considered in the realm of what is possible for most people: growth so strong, unemployment so low and inflation falling so fast.” Even the optimists were not so optimistic,” he added.
Consumer spending was key in the economy’s recovery. The labor market remained solid and this, together with the increase in salaries, made it possible for many citizens to continue spending their dollars especially on services such as entertainment, travel, and meals, even at a time of high inflation.
The growth figures are a political boost for the president, as every year of his administration the country has seen GDP growth. Last year’s 3.3% expansion exceeds GDP growth in every year of President Donald Trump’s term, including 2019, when the economy grew 2.95%.
The United States grows more than Europe and Great Britain, which are on the verge of recession, while China, the second largest economy in the world, is still slowly recovering at 5.2% with an uncertain outlook. Overall, economic growth in advanced economies is expected to slow this year to 1.4% according to the International Monetary Fund.
Biden’s policies helped the economy recover last year, especially by financing infrastructure and clean energy projects that created new jobs and stimulated private investments for US$640,000 million.
However, the president is having trouble convincing voters that the economy is improving because Americans still seem to not feel progress in their pockets. Rising prices, especially on essential goods like food, housing, and utilities, cloud Americans’ views on the economy, and inflation routinely tops the list of voters’ biggest concerns.
The key to this paradox has been the increase in interest rates by the Federal Reserve. Although their efforts are working, many Americans feel that prices are high, although salaries have been consistent.
But, although the Fed in the latest reviews stopped the increase in rates, it has not yet proceeded to download them. In a country where everything is bought in installments, citizens are trapped in loans that are difficult to pay. The Fed has given signals that this year it would begin to lower the rate and this would contribute to improving the prospects of citizens, experts say.
Still, there are signs that Americans are starting to feel better about the economy as inflation eases. The level of consumer confidence rebounded in November and December. However, it is unclear whether that will translate into votes for Biden.
The president seeks to enjoy the moment and issued a statement signed by him: “Today we learned that the US economy grew 3.1% last year, and also added another 2.7% million jobs, and core inflation fell back toward the pre-pandemic benchmark. As a result, wages, wealth and employment are higher now than before the pandemic. That’s good news for American families and workers. There are three consecutive years of growth of the economy from the center outwards and from the bottom up during my mandate. But our work is not done.”
He also included a direct campaign message to his rival Donald Trump: “I will not allow extremist republicans hand out massive giveaways to the rich and large corporations, while raising costs and cutting health and social spending.”