Center for American Progress

The Biden Administration Handed Over a Strong Economy
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The Biden Administration Handed Over a Strong Economy

Here are five reasons why the U.S. economy was at its best in decades, right before President Trump took office for his second term.

Exterior of The White House under a blue sky
Clouds form over the top of the north entrance to the White House, August 2024, in Washington. (Getty/J. David Ake)

This article contains a correction.

The new presidential administration is inheriting an economy that demonstrates significant, continued strength. This column examines the performance of the U.S. economy in 2024, and over the latest business cycle dated from February 2020, finding that it has often exceeded expectations against standard measures.

1. Economic growth surpassed expectations

The path of economic growth in 2024 again defied expectations. In both 2023 and 2024, real gross domestic product (GDP)—the typical measure for the total value of the economy, accounting for inflation—exceeded major public and private forecasts. (see Figure 1)

In 2024, real GDP also continued to exceed estimates of potential GDP—the theoretical total value of output in the economy when resources are used most efficiently—despite inflation subsiding. This phenomenon—known as a positive output gap—suggests an economy working at its efficient capacity.

Similarly, final sales to private domestic purchasers—a key measure of demand in the domestic economy that removes volatile inventory investment—exhibited continued strength. Center for American Progress analysis highlights that final sales to private domestic purchasers grew by an annualized average of 2.8 percent this cycle, up from 2 percent and 2.7 percent for the preceding two business cycles, respectively.

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What is a business cycle?

“Business cycles” refer to the fluctuations in economic activity that alternate between periods of expansion and contraction, where the latter can sometimes result in a recession. These cycles are typically measured from one peak (or trough) to the next, as declared by the National Bureau of Economic Research’s Business Cycle Dating Committee based on a range of national economic indicators. The committee identified February 2020 as the starting point for the most recent business cycle.*

The United States also outperformed other major economies. Its real GDP growth was the highest among the G7 countries in 2023, and projections for 2024 GDP growth indicate that the United States is on track to exceed the 2024 GDP growth of the G7 and the 2024 average of all other advanced economies.

2. Stronger productivity growth returned despite a global slowdown

Productivity growth—producing more with the same or fewer inputs—is key to future prosperity. Productivity helps raise incomes, improve overall economic health, and increase government revenues, providing greater capacity for governments to address pressing challenges such as climate change and an aging society.

The acceleration of labor productivity growth—the change in output per hour worked—defied expectations for 2023 and 2024. (see Figure 2) Although productivity growth typically slows over a business cycle, it averaged 2.3 percent from September 2022 to September 2024, compared with an average of 1.4 percent from December 2019 to September 2022.

And in the face of a global slowdown in productivity, the United States’ productivity record has been world leading compared with declining productivity growth in the European Union, United Kingdom, and Japan.

This strength has characterized the current business cycle, where labor productivity grew by an annual average of 1.8 percent, compared with 1.6 percent in the past cycle. Labor market dynamism and strong rates of new business creation have reversed sluggish productivity, returning to rates not seen since the dot-com boom. McKinsey Global Institute estimates that maintaining this average productivity growth over the decade could result in a cumulative income gain of $15,000 per household.

Major infrastructure investments lay the foundation for future productivity

Historic investments made by the Biden administration—including through the Infrastructure Investment and Jobs Act (IIJA), the CHIPS and Science Act, and the Inflation Reduction Act—have spurred record levels of public and private infrastructure investment across the country, and they are expected to bolster productivity growth in the longer term. CAP analysis of the National Income and Product Accounts finds that key areas of investment targeted by these policies totaled to 8.9 percent of GDP on average over the cycle,** the highest for any business cycle on record dating back to 1960. As a share of GDP, this included 0.5 percent of GDP in private manufacturing structures; 1.8 percent in information processing; 2.3 percent in software investment; 2.7 percent in research and development; and 1.5 percent in state and local government investments in structures, including roads, bridges, and schools. These 2024 data may underestimate the total impact of federal investments, given the timing of funding flows and project implementation.

3. Inflation was tamed without a recession

Inflation has been the dominant feature of post-pandemic economies across the globe, partially stemming from pandemic-related supply-side bottlenecks. This is being brought under control, while simultaneously avoiding the sluggish growth experienced by many other advanced economies. Inflation fell from 7.2 percent in June 2022 to 2.4 percent in November 2024. (see Figure 3)*** Inflation has continued to cool in the past six months, with CAP analysis showing an annualized rate of around 2 percent.

While many households were hit by high post-pandemic prices, inflation is now much lower across key areas of households’ regular purchasing. From November 2023 to November 2024, food prices increased by only 1.4 percent, down from their peak increase of more than 12 percent in August 2022. The price of energy goods and services (including gasoline and electricity) also fell by 4 percent from November 2023 to November 2024.

That the Federal Reserve cut its key interest rate is a sign that inflation worries are subsiding. Other interest rates such as mortgage and credit card rates are likely to follow gradually, easing the burden on consumers.

4. Workers benefited from the strongest labor market in generations

Several indicators point to the continuing strength of the labor market, which has delivered gains from stable employment and sustained wage growth for working families.

The unemployment rate—at 4.1 percent as of December 2024—has been at or below 4.3 percent since November 2021. Moreover, it has been at or below 4 percent for 30 of the past 38 months. This long a period of low unemployment has not been seen since the late 1960s. In 2024, the prime-age employment-to-population (EPOP) ratio—a key measure of employment that accounts for demographic change—pushed beyond pre-pandemic levels, reaching highs not seen since 2001.****

The strong labor market has also improved employment opportunities for specific groups. Crucially, the unemployment gap between Black and white workers has fallen substantially; it reached 2.5 percentage points in December 2024. (see Figure 4) Although a material gap remains, 2023 and 2024 saw the smallest gaps on record since data collection began in the early 1970s. CAP analysis of the Current Population Survey also highlights that the EPOP ratio for prime-age women also reached its highest average of any business cycle since these data were collected post-World War II.

Job stability has also improved in this cycle compared with previous shocks. In 2024, the rate of layoffs and discharges remained at around 1 percent of all jobs in a month, outperforming the preceding 20 years. Similarly, this business cycle has reversed the trend of increasing length of unemployment—the average time spent looking for a job. Shorter periods of unemployment mean greater income stability, since individuals who are laid off can find a job more quickly. CAP analysis finds that the average length of unemployment has been 22.4 weeks this cycle, compared with 29 weeks in the prior business cycle.

Lower-wage workers have also seen significant real wage gains in recent years, in a reversal of longer-term stagnation from prior decades. And workers across the board have seen gains that have exceeded the price growth since the COVID-19 pandemic began.

5. Households, especially those limited by prior barriers, saw substantial wealth gains

The strong economy has generated substantial wealth gains across a wide spectrum of households. On average, net household wealth as a percentage of after-tax income reached a peak in March 2022 and has remained far above the long-term average. (see Figure 5)

Wealth gains have been particularly strong for younger and lower-income households. CAP analysis of the Federal Reserve’s most recent “Financial Accounts of the United States” release finds that during this business cycle, average inflation-adjusted wealth per household increased by a quarterly annualized rate of 9.9 percent for households under age 40 and by 10.5 percent for those in the bottom half of the wealth distribution. Wealth gains by younger households were much faster than those by older age groups, resulting from broad gains in home equity, stocks and mutual funds, and equity in private businesses and liquid reserves, as well as declining consumer debt. And unlike after the Great Recession when the racial wealth gaps widened—especially between Latino and white households—the wealth of those two groups saw similar wealth gains over the cycle.

Household financial security also improved, as the debt burden of households has recently declined. CAP analysis finds that the ratio of total household debt—including mortgages, credit cards, and student and car loans—to after-tax income fell from June 2022 to June 2024.

The pattern of wealth gains partly mirrors homeownership rates, which have improved particularly for lower-income households and households ages 35 to 44. Homeownership rates for those with family incomes less than the median have recovered this business cycle to rates seen in 2006 before the Great Recession, but with greater stability and financial security among these households.

Conclusion

Key economic indicators highlight continually strong economic performance in recent years, and 2024 is no exception. Looking ahead, analyses from Goldman Sachs and Moody’s in 2024 predicted that retaining current policy settings would continue favorable macroeconomic performance in future years. However, increased tariffs—as proposed by the new administration—are expected to worsen economic performance, particularly over the next two years, with increased inflation and lower GDP growth.***** Although current data highlight an economy that is at its strongest in decades, future policies may put this positive trajectory at risk.

The authors would like to thank Brendan Duke, Emily Gee, Marc Jarsulic, and Madeline Shepherd for their thoughtful comments; Meghan Miller for her editorial review and edits; and Mimla Wardak for assistance with fact-checking.

* Data on GDP, investment, productivity, and wealth are reported quarterly, so all data for the most recent business cycle are calculated for the period from December 2019 (the fourth quarter of 2019) to September 2024 (the third quarter of 2024)—as these are the latest data available. The prior two business cycles were dated from December 2007 to December 2019 and from March 2001 to December 2007, respectively. Inflation and labor market statistics are calculated monthly; therefore, the period of measurement for the most recent business cycle is from February 2020 to December 2024, unless otherwise specified.

** Relevant areas of investment most likely to be affected by these policies include manufacturing structures, information processing, software investment, research and development, and state and local government structures.

*** Measured as the 12-month percentage change in the Personal Consumption Expenditure (PCE) price index.

**** In an aging society, it is important to account for the changing age structure of the population when considering employment opportunities. The employment-to-population ratio for prime-age workers is less influenced by the aging population, as it captures workers ages 25 to 54.

***** Correction, January 24, 2025: This article has been corrected to clarify that increased tariffs are expected to lower GDP growth.

The positions of American Progress, and our policy experts, are independent, and the findings and conclusions presented are those of American Progress alone. A full list of supporters is available here. American Progress would like to acknowledge the many generous supporters who make our work possible.

Authors

Christian E. Weller

Senior Fellow

Natalie Baker

Director of Economic Analysis

Team

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