Steady employment and strong consumer spending suggest the U.S. economy has been surprisingly resilient to the Federal Reserve’s most aggressive rate hikes in 40 years. The picture shows consumers visiting a JCPenney store. (Spencer Platt/Getty Images)
[The Epoch Times, September 03, 2023](Comprehensive report by Epoch Times reporter Zhang Ting) The U.S. economic data continues to exceed expectations, causing economists who originally predicted a recession to change their mouths and raise their U.S. economic growth forecasts. Steady employment and strong consumer spending suggest the U.S. economy has been surprisingly resilient to the Federal Reserve’s most aggressive rate hikes in 40 years.
The employment report released by the U.S. Department of Labor on Friday (September 1) showed that employers added 3.1 million jobs in the past 12 months, including an increase of 187,000 in August.
The Wall Street Journal said three factors explain why the U.S. economy continues to beat recession forecasts.
First, labor force growth and a slowdown in price increases have boosted inflation-adjusted, or “real” income, for Americans this year, spurring more hiring and spending.
Second, the unusual nature of the COVID-19 pandemic has distorted normal consumption patterns, leading to shortages of goods, housing and workers. This has created a huge pent-up demand that is currently not very sensitive to the Fed raising interest rates.
Third, the government initially flooded the economy with cash and kept interest rates rock-bottom, allowing businesses and consumers to lock in lower borrowing costs. Subsequent legislation, including the Lower Inflation Act and the $53 billion Chips and Science Act, further increased federal spending and spurred additional private sector investment in manufacturing.
American companies are raising wages for their employees. Real after-tax income rose 3.8% year-on-year in July, and real after-tax income has risen year-on-year in every month since January. Those gains helped drive strong consumer spending. Consumer spending accounts for about two-thirds of U.S. economic output. Neil Dutta, an economist at the research firm Renaissance Macro, said it’s real incomes that drive the economy.
The Fed’s rate hikes have markedly slowed credit-sensitive activity, including private equity and commercial real estate. But in terms of the pillars of the U.S. economy, the pillars are strong because of strong income growth, Dutta said.
Credit rating agency Moody’s (Moody’s) on Friday (September 1) raised its economic forecast for the United States through 2023 as the risk of a U.S. recession has declined. Moody’s said in a report that the agency recognized the underlying strength of the U.S. economy and therefore raised its 2023 economic growth forecast to 1.9% from 1.1% in May.
Michael Feroli, chief economist at JPMorgan Chase & Co., said on August 4 that as the U.S. economy is expanding at a “healthy pace,” the bank no longer forecasts a U.S. recession this year and raised its No. Economic growth forecast for the third quarter.
Strategists at Bank of America also said they no longer forecast a U.S. recession in 2024 and raised their growth forecast for 2023. Now, the firm forecasts U.S. economic growth of 2% in 2023, 0.7% in 2024, and 1.8% in 2025.
However, the three factors that make the U.S. economy resilient today do not guarantee that the U.S. economy will always be resilient. The U.S. central bank raised its benchmark federal funds rate to a 22-year high in July, leaving the door open to further hikes if economic activity picks up.
The covid-era buffers will eventually be weakened — for example, because households save less, but also because companies that lock in lower borrowing costs have to roll over debt at higher rates in coming years. Banks have begun scaling back lending after two high-profile bank failures raised concerns about their profitability. If employers continue to adopt hybrid working methods, office building values will fall and lenders will face potential losses.
Responsible editor: Li Yuan#
2023-09-02 19:27:48
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