While some pundits were predicting a recession at the end of 2022, the U.S. economy demonstrated its strength through continued economic and job growth. In the first half of 2023, the economy remained resilient in the face of additional economic risks and uncertainties, including further interest rate hikes, House Speaker Kevin McCarthy’s (R-CA) seemingly politically driven debt default crisis, and a series of bank failures. This column updates prior Center for American Progress analysis to show that the U.S. economy remains better positioned than many of its counterparts in the Group of Seven (G7) across the following seven indicators: inflation, energy prices, gross domestic product (GDP), the unemployment rate, the long-term unemployment rate, the 2023 International Monetary Fund (IMF) GDP forecast, and the 2023 IMF unemployment rate forecast.
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Biden administration actions have helped build a stable foundation for economic growth
Since January 2021, the Biden administration has taken decisive action to ensure that the U.S. economy rebounds from the recession triggered by the COVID-19 pandemic, as well as to fortify Americans’ economic security. After Russia’s war on Ukraine began, the administration took steps to help address rising gas prices. More recently, the administration shored up depositors at banks that failed. It also struck a deal with the right-wing members of Congress who were threatening to allow the United States to default on its debts—something that would have had catastrophic consequences for the economy.
These Biden administration actions built upon steps taken over the past two years to grow the economy by investing in the middle class—from the American Rescue Plan, which helped the nation avoid higher poverty rates as well as the double-dip recession experienced by other leading global economies, to its pursuit of a new industrial strategy that is set to transform local communities, create good new jobs, and expand productive capacity.
The United States has the lowest inflation rate in the G7
As the world emerged from the heights of the COVID-19 pandemic, most advanced economies experienced elevated inflation. U.S. inflation remains above the Federal Reserve’s 2 percent target but is down substantially from its 2022 highs, with annual inflation declining in each of the past 12 months. Compared with advanced European economies, the United States has the lowest harmonized headline inflation rate—a comparable measure of inflation. (see Figure 1) In fact, compared with every other G7 economy, the United States has not just the lowest headline inflation but also the lowest core inflation—inflation that excludes volatile energy and food prices. Core inflation is the preferred measure of central banks.
What is the G7?
The G7 comprises the following seven advanced economies: Canada, France, Germany, Italy, Japan, the United Kingdom, and the United States. The European Union is a nonenumerated member.
Across the G7, energy prices are down from their 2022 highs
Similarly, progress has been made on energy prices across the G7, with the United States recording the second-strongest progress, after Canada. (see Figure 2) In May 2023, U.S. energy prices declined by 11.7 percent over the preceding year, thanks in part to the Biden administration tapping the Strategic Petroleum Reserve. Importantly, the administration’s clean energy investments—namely, through the Inflation Reduction Act—will help ensure that the United States is not reliant on gas, and its associated price volatilities, over the long run. Japan has also experienced lower energy prices, though not to the extent that the United States has. And in other G7 nations, energy prices continue to grow—though at a slower rate than 2022.
The United States has had the strongest economic recovery, measured by GDP
The U.S. economy has remained strong in 2023, with continued growth amid economic uncertainties. Most notably, this growth comes in the wake of the United States fully regaining all pre-pandemic GDP losses in 2021, as well as surpassing pre-pandemic levels. In fact, the U.S. economy has had the strongest recovery, as measured by GDP, within the G7. Other economies in the G7, most notably those of the United Kingdom and Germany, have yet to recover output lost from the pandemic-induced recession and are still performing below trend. (see Figure 3) Moving forward, new wide-ranging investments, from infrastructure to clean energy, are setting the U.S. economy up for long-term success.
The U.S. labor market has remained resilient, with low unemployment rates
The U.S. labor market has remained resilient in the face of rising interest rates. The swift and broad-reaching labor market recovery seen over the past few years continued through the first half of 2023. The United States added, on average, 278,000 jobs per month over this time period, and the unemployment rate remained below 4 percent. Notably, the monthly job gains realized throughout 2023—coming after the United States regained all jobs lost during the pandemic—are higher than the nation’s monthly job gains before the pandemic. Labor force participation is also incredibly strong. Participation among individuals ages 25 to 54 is at its highest level in more than 20 years, and women ages 25 to 54 are currently employed at record rates.
Moreover, the United States has been able to maintain consistently lower unemployment rates than most other G7 countries. (see Figure 4) When comparing real wages in 2019 to real wages in 2022, the United States is one of only two G7 economies to demonstrate real wage growth (adjusted for purchasing power). The pursuit of different labor market policies during the height of the COVID-19 pandemic, tight labor markets, and reallocations of labor to higher-wage industries have also played a role in helping the United States surpass other G7 nations in terms of labor productivity.
The United States is making progress on long-term unemployment
Being unemployed for long periods of time can make it difficult for workers to return to the labor force and leads to loss of skills. To prevent long-term damage to the economy, it is essential to keep workers connected to the labor market. Following the Great Recession, long-term U.S. unemployment stayed high for a significantly long time, with the share of people who were unemployed for 27 weeks or longer peaking at 45.5 percent in early 2010, and not returning to pre-recession levels until March 2020. In stark contrast, following the COVID-19-induced recession, after the share of individuals experiencing long-term unemployment peaked in March 2021, it quickly declined, dipping to below pre-recession levels in July 2022.
The latest annual figures from the Organization for Economic Cooperation and Development—which defines long-term unemployment as that lasting 12 months or more—show that in 2022, the United States had the second-lowest long-term unemployment rate in the G7. (see Figure 5)
The IMF’s economic and labor market outlook remains positive
Despite experiencing economic uncertainty on many fronts throughout the first half of 2023, the United States is expected to maintain its resilience, with many indicators suggesting that it is on a path to securing a soft landing. The latest projections from the Federal Open Market Committee no longer forecast a recession; instead, the Federal Reserve projects continued economic growth and relatively stable unemployment over the next few years. Further, the International Monetary Fund has projected that in 2023, the United States will see the second-highest growth in real GDP per capita among the G7 nations, behind only Japan (see Figure 6), as well as one of the lowest unemployment rates. (see Figure 7)
Conclusion
The U.S. economy has continued to grow during the first half of 2023 in the face of a multitude of economic risks. By many metrics, it has outpaced its competitors, recording the lowest inflation rate and the strongest economic recovery in the G7. This demonstrates that the Biden administration’s policy decisions have played a clear role in the nation’s comparatively quick recovery from the COVID-19 pandemic. The U.S. economy is well-positioned, and additional economic investments should help ensure that its economic future remains strong.