The astonishing strength of the American economy

Correspondent in Washington

From one quarter to the next, activity more than doubled. According to better-than-expected figures from the Commerce Department, third-quarter growth in the United States accelerated to an annual rate of 4.9%.

The recession scenario in the United States, postponed several times for more than a year, to the point of casting doubt on the ability of economists to understand what is really happening, has not yet been abandoned. Because experts are counting on a marked slowdown by the end of the year, judging that multiple factors will weigh on demand. Many economists prefer to speak of a “soft landing” scenario for next year corresponding to growth of less than 2% without too marked an increase in the unemployment rate, currently at 3.8%.

Nevertheless, denying the cries of alarm raised for months, the American consumer is doing well, persists in emphasizing Jamie Dimon, the influential boss of JPMorgan Chase. The fact that central banks “have been 100% wrong for eighteen months” should lead to more humility in estimating the prospects for next year, the CEO of the States' largest bank quipped at the start of the week. -United.

The consumer, with savings accumulated during the Covid confinements, from which he drew much more than economists anticipated, propelled growth from July to September. Of the estimated 4.9% increase in GDP, 2.7% comes from personal consumption expenditure. The savings rate therefore plunged from 5.2% in the second quarter to 3.8% at the end of the third quarter, explains the Commerce Department. It is clear that this important driver of demand will run out of steam at the end of the year.

Full employment, which encourages the return to the workforce of thousands of people tempted by a different lifestyle during the pandemic, has also stimulated demand. More than three million additional jobs have been created in the United States over the past twelve months. This powerful movement injects purchasing power into the economy, despite inflation still being too high.

Thousands of Americans, seeing that there are numerous job offers, are taking up a “job” and are not afraid to spend. In August (most recent statistics), the country still had 9.6 million unfilled job offers, or 1.5 offers per unemployed person. In addition, the glaring labor shortage since the end of the pandemic means that companies are much more reluctant to lay off staff than in previous economic cycles.

The increase in business inventories also boosted expansion in the third quarter, to the point of being responsible for 1.3% growth.

Furthermore, the strength of exports explains 0.7% of growth. However, the deterioration of demand in Europe and elsewhere in the world risks weakening exports in the fourth quarter.

The other powerful engine of growth is the explosion of the budget deficit. The latter doubled from 2022 to 2023, to reach 2000 billion dollars, if we do not take into account accounting charges intended to take into account the erasure, finally prohibited by the Supreme Court, of 300 billion dollars of student debts. The hole in public finances went from 5.4% of American GDP during fiscal year 2022, to 6.3% during fiscal year 2023 which has just ended.

The White House and elected Democrats accuse the Republicans under Donald Trump of being responsible for the fall in public revenue caused by the tax cuts passed in 2017. The Republicans judge, on the contrary, that the multiple public spending plans voted since Joe Biden is president, and the sharp rise in the debt burden triggered by inflation, are the cause of the problem. In either case, the extreme polarization of Congress creates the conditions for strict limitations on new spending over the coming months.

The possibility of a “shutdown” (forced closure of certain administrations) in mid-November, due to lack of compromise on the budget, and the effects of the long strike in the automobile industry could weigh on growth in the coming weeks. Not to mention the restrictive monetary policy of the central bank and the sharp rise in interest rates which persists on the financial markets.