Under these circumstances, the numbers could hardly look much better.
A year or two ago, the conventional wisdom was that America was facing a terrible recession.
Instead, according to the most recent data from the International Monetary Fund, the U.S. has outperformed virtually every other major economy in the world (including China).
In your latest report on the World Economic Outlook — the most closely watched set of international forecasts — has improved the U.S. more than almost every other major economy.
From a European perspective, there is much to be jealous of in America’s recent performance (most European countries, including the UK, have seen the IMF cut their growth forecasts).
However, here is the puzzle. Despite this comparatively strong economy, despite having recorded a lower peak in inflation than most European countries (especially the United Kingdom), American consumer confidence remains in crisis.
It’s not just Europeans who find this disconcerting. The same goes for the White House.
They pumped money into the manufacturing sector just when it needed it, through a series of expensive programs, including the CHIPS Act (to bring back semiconductor manufacturing) and the Reducing Inflation Act (to encourage technology companies green to establish factories in the country). US).
The idea was that, from the depths of the pandemic, America would “build back better” – that Biden would emulate Franklin D Roosevelt and his New Deal of the 1930s.
And most conventional statistics suggest the strategy is paying off. Employment in manufacturing is increasing; Factories are being built at the fastest pace in modern history. And gross domestic product – the most comprehensive measure of production – is rising. Unlike the UK or in Germany, there was no recession.
So why is consumer confidence so weak? Why are Biden’s approval ratings – the main polling benchmark for the US leader – lower than virtually any of his predecessors at this stage of his terms?
Travel around Pennsylvanialike we did the last few days, and you find all kinds of explanations.
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It’s inflation, stupid
Food banks are increasingly busy; and although some companies are starting to see federal money trickle in, many of the programs are still in the approval phase. The money hasn’t arrived yet.
But, above all, one hears a recurring answer: it is the cost of living. It’s food prices, it’s gas prices, it’s rents.
And there’s also a big gap here between life through an economic prism and life lived on Main Street in places like Bethlehem PA – a former steel town trying to reinvigorate its economy.
Talk to an economist and he will remind you that inflation – the rate of change in prices over the past year – is finally starting to slow. But while this is statistically true, it leaves out some pragmatic realities.
First, prices are not falling; they are just rising a little less quickly than before. The tightness didn’t go away.
Secondly, although economists often focus on the change in the consumer price index over the past year (3.5% in March), what the rest of the population notices is the change in prices over a longer period.
In the last two years, prices have risen about 9%. In three years, they increased by 18%.
In other words, the explanation for the “vibes recession,” as economists have dubbed it (there is no formal recession, but vibes are bad), may actually be exceptionally simple: it’s inflation, stupid.
Summarizing what voters care about, an advisor to Bill Clinton once said “it’s the economy, stupid” during a US election race in the 1990s. Photo: Reuters
In Pennsylvania, perhaps the most critical of all US swing states, the question is whether donald trump he can capitalize on this discontent to win over the citizens who abandoned him last time.
Meanwhile, the Biden White House is biding its time, hoping that the New Deal economic playbooks they followed when they pumped money into the economy are actually trustworthy.
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