Kavan Choksi / カヴァン・チョクシ Sheds Light on the Economic Expansion of the United States Economy

 

The United States economy started 2024 on a softer note than anticipated, with high interest rates and inflation continuing to weigh on the economy. Kavan Choksi / カヴァン・チョクシ says with low unemployment, robust economic growth, and the majority of the journey back to 2% inflation completed, the U.S. economy is likely to provide a rising tide to support most investment boats for the rest of this year and into the year of 2025.

Kavan Choksi / カヴァン・チョクシ offers valuable insights into the United States economy

The economic expansion that started with a very swift rebound from the pandemic recession in April 2020, has entered its fifth year now. Even though growth remains slightly stronger than expected and inflation a little hotter, the broad trend is of an extended expansion that is powered by a surge in immigrant workers, demanding consumers and competition suppressing inflation. The economy has managed to survive its cyclical fever, and is likely to continue on a path of mildly moderating inflation and growth, unless and until it is hit by some major, unexpected shock.  

The very impression presented by recent GDP numbers is one of sharp deceleration, as the real GDP growth fell from 4.9% annualized in the third quarter of 2023 to simply 1.3% in the first quarter of 2024. First impressions, however, can be deceiving. It is imperative to understand that the majority of the measured slowdown took place due to a sharp downturn in net exports and inventory accumulation. These are two of the most volatile and mismeasured components of GDP. Subsequent to excluding these sectors and looking instead at final sales to domestic purchasers, real growth downshift seems more modest, from 3.5% in the third and fourth quarters of 2023 to 2.5% in the first quarter of 2024. Preliminary estimates indicate that real GDP growth in the second quarter is around 2.5%, maintaining a trend of growth significantly higher than the Federal Reserve's long-term projection for the U.S. economy, which is currently set at 1.8%. This growth is quite notable, especially given the widespread recession fears of a year ago. There are two major factors that contributed to this growth. First of all, consumer spending has remained pretty strong even in the face of declining pandemic savings. Consumer spending is likely to continue to drive the expansion forward into 2025, with an extended period of positive real wage growth and significant recent gains in wealth.

The resilience of investment spending in the face of high interest rates and credit crunch has been a surprise. Kavan Choksi / カヴァン・チョクシ points out that this resilience is largely reflected in the increasing demand for AI based technologies, healthy corporate balance sheets, as well as federal government incentives.  This trend is expected to continue into 2025, while providing the potential for sustained moderate economic expansion in the absence of a major shock. Moderation has also been seen in labour markets, with the unemployment rate edging up to 4.0% from a low of 3.4% set in April 2023.