U.S. Economic Exceptionalism

God Bless America('s Economy)

At my wife’s office Christmas party in 2019, the DJ closed the night by firmly insisting that everyone stand in a circle, hand-in-hand, and sing Proud to Be an American. You’ll never know the depth of the national pride (and extreme personal discomfort) you feel holding hands with your wife’s coworker’s husband while he drunkenly belts God Bless America, but recent U.S. economic performance should still have you feeling pretty damn patriotic.

First, the U.S. Economy expanded a very healthy 2.5% in 2023. That’s remarkable because 1) some (or maybe even most) people thought it would contract and 2) there were so many headwinds that could have blown the economy off course: the Fed jacked interest rates up to the highest level in over two decades, inflation started the year at a 6% annual rate, banks failed, labor was historically scarce, geopolitics, etc.

Second, our growth looks even more impressive compared to the rest of the world. Last week we learned that the UK economy contracted in the fourth quarter and is technically in recession. Same goes for Japan.

Joey Politano, who writes the excellent Apricitas Economics newsletter, graphed GDP growth by G7 Country.

The situation in other G7 countries looks even worse on a per capita basis.

Which is to say, the U.S. economic recovery could be much worse. At least based on other countries, it’s hard to imagine it being much better.

And speaking of much better, that’s how Americans are feeling about the economy. Consumer expectations increased to the third highest level since the start of the pandemic in February.

That improvement has occurred across the political spectrum (the party holding the White House always feels significantly better about the economy).

If we were an asset management firm, I’d have to say “Past performance is no guarantee of future results.” It’s good advice. Despite recent momentum, there’s a long list of things that could go wrong from here.

Last week’s disappointing economic data was a firm reminder of that. Even though it now looks unlikely that the Fed will cut rates in the first half of the year, I’m still bullish about 2024’s economic prospects.

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