1 April 2024

The US Economy is Outperforming Much of the Rest of the World

For much of the world, the past few years, including last year, have been particularly difficult from an economic standpoint. However, for the United States economy, 2023 proved to be a surprisingly strong year, despite lingering inflationary pressures, high interest rates and persistent labor shortages. Moreover, while economic sentiment among the US public has risen, it still low enough to suggest that the US economy has been performing poorly. However, it has not, especially when it is compared to its contemporaries around the world.

To be sure, the United States has faced a series of economic challenges in recent years. For example, inflation rates rose to their highest level in four decades, prompting major interest rate hikes that have badly impacted many sectors of the economy. Labor shortages, driven by demographic trends and changes in working habits, have remained a thorn in the side of the US economy, as well as in the side of Northeast Ohio’s economy. Meanwhile, many key sectors of the US economy have been stagnant in recent years, including the manufacturing and agricultural sectors, two cornerstones of Ohio’s economy.

Despite these challenges, the economy of the United States has performed relatively well of late, particularly when compared with its international rivals. For example, while Europe’s economy remained stagnant in 2023 and other major developed economies struggled to generate significant growth, the US economy expanded by 2.5% last year. Much of this growth was driven by the technology and professional services sectors, two areas in which the US holds a dominant global position. Meanwhile, the United States continued to attract much more foreign investment than its rivals last year, while productivity growth accelerated after years of decline. Finally, inflationary pressures fell sharply last year, easing the financial burden on US households.

The fact that the United States is outperforming other developed economies is not a recent development. So far in the 21st century, the US economy has expanded by 2.0% per year, well above the 1.1% annual growth recorded in Europe, or the 0.7% annual growth recorded in Japan. Moreover, the US’ lead over its main economic rivals has widened in recent years. At the same time, the United States has attracted far more foreign investment in the 21st century ($5.5 trillion) than any other economy in the world. This is due to a number of factors, including the attractiveness of the US’ vast consumer market, its high degree of economic competitiveness and its strong position in many of the fastest-growing sectors of the economy.

Despite this recent success, the United States cannot be complacent. For example, 2024 could prove to be a more difficult year for the US and global economies than 2023 proved to be. There are many potential pitfalls facing the economy this year. For example, the uncertainty surrounding the US’ presidential election in November could weaken business and investor confidence. Likewise, the potential for further inflationary spikes caused by higher commodity prices or shipping costs will remain in place. Finally, the outlook for the economy outside of the US is rather poor, with the global economy forecast to grow at a slower pace in 2024 than in any year since 2020.

Nevertheless, the United States economy still has significant growth potential and this could see the US through these challenges over the remainder of this year. In fact, the United States economy has a higher growth ceiling (the highest rate of growth that an economy can reach without overheating) than nearly all other developed economies. Likewise, the United States will remain the world leader in terms of attracting both investment and talent. In fact, the US economy is likely to continue to outperform other developed economies, even in the face of rising levels of political dysfunction at home and abroad. If policymakers and business leaders take the right steps, the US economy has the potential to have a very bright future, one that can remain the envy of the world.