The Next President Inherits A Promising Economic Landscape

Whomever emerges victorious in next week’s presidential election will face numerous challenges, yet they will inherit an economy that outshines its global counterparts. Following a robust performance in the third quarter, the U.S. economy has expanded by 2.7% over the past year, outpacing every major developed nation and exceeding its historical growth rate.

Quality of Growth

The quality of this economic growth is even more impressive. This expansion has not merely arisen from depleting finite resources, which could ignite inflation. Instead, it has stemmed from enhanced productivity among both individuals and enterprises. If this trend continues, it will offer considerable support to the next president, a stark contrast to the three of the last four presidents who assumed office during or around a recession.

Inflation and Productivity Trends

Increased productivity growth should make the economy less susceptible to inflation and more capable of sustaining budget deficits. This would yield substantial wage growth, benefiting either President Trump or President Kamala Harris. Interestingly, 62% of Americans view the economy as “not so good” or “poor,” largely due to the high inflation experienced from 2021 to 2023, which still affects perceptions today.

Analyzing the Economic Landscape for the Next Presidential Leader

A Global Perspective

In a global context, most world leaders would eagerly exchange their economies for that of the U.S. The U.S. has a growth rate of 3% through the second quarter. This impressive performance stands alone among the world’s largest advanced economies. None of the next six economies have surpassed 1% growth, highlighting U.S. strength. Even China is facing economic difficulties, making the U.S. performance all the more significant.

Federal Reserve and Inflation Dynamics

Vigorous growth can sometimes foreshadow a recession, but inflation has decreased over the past year, registering at 2.7%. This figure was noted in the third quarter. While this rate remains above the Federal Reserve’s target of 2%, the Fed has recently implemented rate cuts. They anticipate further reductions without sacrificing growth, which Robin Vince, CEO of BNY, described as a “Goldilocks scenario.”

Labor Force Contributions

Some of the economic growth can be attributed to an increase in the labor force due to an influx of unauthorized migrants. Payroll employment rose by 2.4 million, or 1.6%, in the year leading up to the third quarter. Adjusted for hours worked, productivity likely increased by 2% to 2.5%, significantly surpassing the 1.5% average annual rate recorded from 2007 to 2019.

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Future Growth Potential

While sustaining such rapid economic growth may be challenging due to a slowdown in migrant flows, the U.S.’s heightened productivity suggests that its long-term growth potential might exceed the 1.8% rate long anticipated by forecasters. Economist Satyam Panday points to significant investments in artificial intelligence, data centers, and renewable energy as a source of optimism.

Global Productivity Disparity

The Bank for International Settlements reports that from the end of 2019 to 2023, total output in the U.S. increased by 7.9%, driven predominantly by productivity improvements. In contrast, the eurozone’s output rose by only 3%, entirely due to increased hours worked. This disparity highlights the exceptional nature of the U.S. economy amidst global challenges.

Economic Sentiments Amidst Growth

Despite a thriving economy, many Americans feel discontented. Non-economic factors contribute to this sentiment, but inflation is particularly significant. From 2021 to 2023, wages lagged behind inflation, with higher prices benefiting profits rather than wages. This trend appears to be reversing, as average wages have recently surpassed inflation.

A Positive Outlook for the Next President

Looking ahead, inflation is likely to gravitate much closer to 2% over the next four years compared to the past four. While the next president will inherit a lighter inflation burden than Biden did, the road ahead remains fraught with uncertainties. Nonetheless, they will possess the foundation of a resilient and expanding economy, a crucial asset as they navigate the challenges of leadership.