Economic uncertainty is unsettling most countries today. Major, persistent headwinds are threatening global economies, and the severity of these impacts loom. Given Russia’s war in Ukraine, the ongoing economic implications resulting from the COVID-19 pandemic, climate-related disruptions, and central banks’ decisions to rapidly increase interest rates, another global economic downturn seems increasingly likely. Yet despite these global challenges, the U.S. economy remains strong with a tight labor market, a historically low unemployment rate, and a growing economy.
During and following the COVID-19 recession, fiscal supports, such as the American Rescue Plan of 2021, and a historic federal vaccination program helped steward the U.S. economy to an unprecedented recovery, averting a double-dip recession, higher poverty rates, and the scarring impacts of longer periods of unemployment. At President Joe Biden’s instigation, Congress has passed an industrial strategy—in the form of the Infrastructure Investment and Jobs Act, the CHIPS and Science Act, and the Inflation Reduction Act—that is helping set the economy on a path of resilience and independence. The evidence suggests that, despite headwinds, the United States is set up to have a stronger economic outlook than many other leading industrial nations—some of which have already seen their economies contract or fall flat.
This article highlights seven indicators—inflation, energy prices, gross domestic product (GDP), unemployment rate, long-term unemployment, the 2023 GDP forecast, and the 2023 unemployment rate forecast—that compare the state of the economic recovery in the United States and its outlook for 2023 with that of its Group of Seven (G-7) counterparts.
What is the G-7?
Canada, France, Germany, Italy, Japan, the United Kingdom, and the United States constitute the G-7—an informal gathering of some of the largest advanced economies in the world. The European Union is a nonenumerated member. Together, the G-7 accounts for nearly half of global economic activity.
Inflation is a global issue
In nearly every advanced economy, inflation is currently higher than historic averages, putting pressure on individuals, businesses, and the stability of economies. Simply put, the United States is far from the only country dealing with rising prices. Inflation is a problem in every single country in the G-7, but it is having the strongest impact in Germany, Italy, and the United Kingdom, where inflation is at or near double digits. (see Figure 1) Inflation is even higher than usual in Japan, which had experienced more than two decades of deflation.
While inflation arose as an issue earlier in the United States than in other G-7 nations, current inflation in every member country is primarily related to supply being insufficient to meet demand. Globally, Russian President Vladimir Putin’s war in Ukraine is putting upward pressure on energy and food costs; ongoing supply chain issues are creating bottlenecks for specific goods; and the aftereffects of the pandemic continue to cause rising prices. Energy costs are particularly rising in the United Kingdom, Italy, and Germany—unsurprising given these countries’ overdependence on Russian fuel supplies. (see Figure 2)
How the Biden administration’s industrial strategy is meeting this moment
The current global inflationary crisis serves as a reminder of the pitfalls of overreliance on global supply chains and underscores the urgency of expanding domestic supply, particularly of critical goods. To respond to this need, the Biden administration’s industrial strategy will reduce consumer costs and create good new jobs through supply-side investments, ultimately building a more resilient economy.
For example, the Inflation Reduction Act includes historic investments in clean energy that will expand domestic production and help relieve supply chain bottlenecks—setting the United States on a course toward a 100 percent clean energy future. To advance this goal, many companies have announced new domestic manufacturing efforts since the law’s passage in August, which will also create jobs at home in the future. The CHIPS and Science Act similarly incentivizes domestic manufacturing and research and development. Specifically, by revitalizing domestic semiconductor manufacturing capacity, the CHIPS and Science Act will move the United States toward supply resilience when it comes to a critical input. In combination, these efforts will help the United States better absorb economic shocks moving forward.
The U.S. economy has recovered faster than its global counterparts
Although most leading economies are experiencing inflation, the U.S. economy remains strong. While the COVID-19 pandemic created unprecedented economic disruptions in leading economies, the U.S. economy recovered much faster than any other in the G-7; by the third quarter of 2021, the country regained all real GDP—a measure of economic activity—lost since the start of the pandemic recession. (Figure 3)
In contrast, some economies, such as the United Kingdom, are operating below pre-recession levels, making the prospects of another downturn—one that has already been forecast by the Bank of England—extremely concerning. The robust recovery in the United States was not a foregone conclusion, but instead the result of intentional policy choices. Strong fiscal supports passed by Congress, including the expansion of unemployment insurance and enhancements to the child tax credit, helped the United States avoid a prolonged economic downturn.
The labor market recovery in the US has also been strong
The recovery of the U.S. labor market from the depths of the COVID-19 pandemic has been historic. In a little more than two years, the economy had recovered all jobs lost during the recession, and the unemployment rate remains near 50-year lows—and lower than in many G-7 countries, including neighboring Canada. (see Figure 4) In places such as the United Kingdom, the enactment of different labor market policies meant that during the COVID-19 recession, the unemployment rate did not spike as it did in the United States. This makes the recovery of the unemployment rate in the United States even more remarkable—demonstrating the importance of pandemic relief measures and an expanded social safety net.
Long-term unemployment is lower in the US than in most other G-7 nations
Although labor force participation has not yet completely recovered in the United States, long-term unemployment, while unacceptably high, is much lower than in almost all other G-7 countries. (see Figure 5) This is critical, as sustained long-term unemployment can disconnect workers from the labor force, making it difficult for them to return. Ensuring that workers are able to maintain their connection to the labor force and avoid a loss of skills is essential to a successful recovery. In the United States, fiscal support from the Biden administration was critical to preventing scarring, especially by ensuring that young workers, low-wage workers, and workers of color—who particularly struggled during and following the Great Recession—experienced strong wage growth.
Despite global headwinds, the 2023 U.S. economic outlook remains promising
Despite major uncertainty, the 2023 economic outlook is more promising for the United States than most other members of the G-7. Central banks in Canada, England, and the European Union are all projecting lower real GDP and higher unemployment rates—and for longer periods of time—than the Federal Reserve. Projections from the International Monetary Fund look equally favorable, with the United States forecast to have higher growth than every G-7 country except Japan (see Figure 6) and lower unemployment than most G-7 nations in 2023. (see Figure 7) Of course, due to global headwinds such as inflation and Russia’s war in Ukraine, real GDP growth is expected to be much lower than usual across the G-7.
Economic uncertainty continues to affect every advanced economy as inflation, alongside the prospects of a central bank-induced recession, is threatening to undo progress toward economic recovery. However, the United States is entering this period from a very strong position. While there are many downside risks that could manifest, legislative wins over the past two years have helped shore up a strong economic foundation and lay the groundwork for future economic resilience.