Last fall, experts predicted a recession. Instead, the U.S. economy has grown at a faster rate than many think is sustainable in the long run. Why has the economy outperformed the forecasters’ predictions?
. Since last October, though, there haven’t been any colossal surprises. Global supply chains have continued to recover from the pandemic, the war in Ukraine has continued, and the Fed has followed through on its pledge to keep raising rates until inflation is brought under control. Why, then, has the economy outperformed the forecasters’ predictions?
The proximate answer is that consumer spending and capital investments by businesses have held up stronger than expected. In the three months from April to June, personal consumption expenditures, which make up more than two-thirds of G.D.P., rose at an annual rate of 1.6 per cent, and gross private domestic investment rose at a rate of 5.7 per cent. Together, these increases accounted for nearly all of the quarterly rise in G.D.P.
One reason is that prices are now rising less rapidly than wages , which means workers’ purchasing power is rising, albeit slowly. Combined with healthy job growth, the sharp fall in the inflation rate—from 9.1 per cent in June, 2022, to three per cent this past month—has made many consumers feel better about things. Earlier this week, the Conference Board said that its index of consumer confidence had reached the highest level in two years.
And the bad news? As a worrywart, I can always find things. The Fed could still tank the economy by keeping rates too high for too long. The renewed bubble in technology stocks, driven by optimism about A.I., could end in a stock-market crash. There could be another banking crisis, or something out of the blue, such as a conflict in the Middle East that creates another run-up in energy prices.
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