The US economy in 2023 defied expectations. Many forecasters predicted a recession at the beginning of the year, and some even declared there was a 100% chance of a recession. In this blog post, we highlight 10 trends that capture some of the most important economic developments over the past year. Taken together, these paint a picture of an economy characterized by strong growth driven by solid and stable employment growth, real wage growth, and strong consumer spending backed by historic gains for women and black workers. . At the same time, data shows that the historic public investments that make up the Biden-Harris administration's economic policies are beginning to bear fruit in areas critical to future growth, resilience, and security. Nevertheless, more remains to be done to reduce costs for American households and ensure that Americans feel the benefits of continued real wage growth, a strong labor market, and lower inflation. There's more.
Growth exceeded expectations a year ago.
Contrary to pessimistic forecasts, U.S. economic growth progressed at a significant pace through 2023. Last December, the private consensus on real economic growth as measured by blue-chip economic forecasts was: negative 0.1% per year. Here are the latest blue chip company forecasts for growth in 2023, incorporating all data available to date. positive 2.6%, driven by strong consumer spending, a return to investment in manufacturing structures, and increased purchases by state and local governments. The level of US real GDP in 2023 exceeded some pre-pandemic Includes projections from the Congressional Budget Office and the International Monetary Fund. Healthy household balance sheets and a strong labor market are the main drivers of U.S. consumer spending, which continues to grow at a pace close to the average of past economic expansions.
Investment in manufacturing has reached a historic high.
In the third quarter of 2023, real (inflation-adjusted) private manufacturing construction investment reached its highest level since 1958. Similarly, manufacturing construction made the largest contribution ever to year-on-year real GDP growth. A major factor in this historic manufacturing boom was the Inflation Control Act.
Employment growth slowed to a steady and steady pace, but unemployment remained low despite falling inflation.
Job growth continued at a very high pace in 2023, but was down compared to the breakneck momentum seen in 2021 and 2022 in the immediate aftermath of the pandemic recession. Nonfarm payrolls grew by an average of 232,000 people per month in 2023, an increase of 55,000 jobs per month compared to the average pace of 2018 and 2019. As a result, the total job growth achieved under the Biden administration reached 14.1 million by November 2023. Interest rates have remained below 4% for 22 consecutive months to date, levels not seen in over 50 years. This is especially true given the decline in inflation.
Inflation slowed throughout the year
After peaking in the summer of 2022, inflation has been on a downward trend for a year and a half due to receding food, energy and goods inflation. Inflation in the service sector is highly dependent on wages, as labor costs are the most important cost in service production, and has slowed more slowly, in line with the gradual moderation of wage inflation. Meanwhile, market data on new rentals suggests that house price pressures will continue to ease.
…Mainly thanks to supply chain recovery.
As the CEA highlights, the rise in inflation during the pandemic and subsequent fall was overwhelmingly linked to supply-side forces, such as disruptions to global supply chains and increased labor force participation among middle-aged workers. . Our analysis finds that supply chain disruptions, either alone or in conjunction with demand cooling, explain 80 percent of disinflation to date. In fact, one of the most important economic developments of the year was a significant drop in inflation without a significant rise in unemployment.
Real wages have increased and wage inequality has narrowed.
Real wages began to increase in 2023 as inflation fell from its peak in 2022 and workers received large increases in nominal wages. In the year to November, real wages increased by about 0.8% for all workers and 1.1% for 80% of production and non-supervisory workers. Furthermore, the wage gap has narrowed. Wage ratio in the 1990sth percentile compared to 10th The percentile decreased by nearly 6% over the year. One reason to remain optimistic about this trend in 2024 is his historic union victory in 2023. Strong unions contribute to economic growth by reducing inequality and increasing incomes.
Women and Black Americans have made historic advances in the labor market.
In 2023, the labor force participation rate of prime-age women will be the highest since 1948. Each of the past eight months has surpassed the previous high of 77.3% set in April 2000. This group's record labor force participation has helped boost American household incomes and keep consumer spending strong.
In 2023, the U.S. economy experienced the smallest gap in employment rates between black and white workers in history, averaging -0.7 percentage points. The strong economy brought about by President Biden's economic policies has reduced some long-standing inequalities in the labor market, reducing them to record lows.
Consumer sentiment improved in 2023.
More efforts are needed to reduce costs, and there is room for further improvement in consumer sentiment. However, 2023 saw momentum in the recovery in consumer attitudes. One way he sees this is by tracking the same workers over time in the University of Michigan's Consumer Sentiment Survey. Figure 10 shows the difference between the percentage of respondents who reported higher sentiment than six months ago and the percentage who reported lower sentiment over the same period. A value greater than zero indicates that more respondents report an improvement in sentiment over the period, rather than a decline in sentiment. Throughout 2023, the net share of respondents who say sentiment is higher than it was six months ago will be between 10 and 20 percentage points, a level of momentum that has historically been associated with strong economic growth.