Why has the theory of a recession in the United States been broken?

Based on the national economic statistics reports for the first three quarters of 2023 released by the statistical departments of various countries, we have produced the following charts. Looking at the advanced economies first, Spain's economy grew by 2.6 percent year-on-year, Japan's growth by 1.7 percent, Canada's growth by 1.5 percent, and South Korea's growth by 1.1 percent.

France and Italy both grew by 0.7% in the first three quarters, the UK grew by 0.5% and Germany fell by 0.4%. In contrast, the US economy grew by 2.5% in real terms, which is at the leading level.

Compared with large developing economies such as India, China, Indonesia, and Mexico, the U.S. does not have an advantage in GDP growth. However, with the help of inflation, exchange rate and other factors, the scale of the U.S. economy in the first three quarters has increased significantly to 20.278 trillion US dollars, and the lead has actually expanded.

The theory of recession in the United States has been shattered

During the global pandemic, the U.S. economy experienced a "technical recession," with a number of leading indicators signaling an imminent full-fledged recession. As a result, a number of institutions, including Goldman Sachs Group and Bank of America Merrill Lynch, predict that the U.S. economy will fall into recession sometime in 2023.

However, judging from the official statistical results released by the U.S. Department of Commerce, the development of the U.S. economy has repeatedly exceeded expectations, successfully avoiding a "hard landing" - a year-on-year increase of 1.9% in the first quarter of this year, and a year-on-year growth rate of 2.5% in the second quarter.

In the third quarter of this year, the year-on-year growth rate of the U.S. economy further increased to 2.8%, and the annualized growth rate from the previous quarter was as high as 5.2%, showing no signs of recession. The economic growth rate for the whole of 2023 is likely to be in the range of 2.4% to 2.5%, which is obviously stronger than in 2022.

At a time when most advanced economies are worried about the outlook and expect a sluggish global economy, the U.S. economy is on its own, and time and again it has exceeded expectations as many large developing economies pull out all the stops to achieve results that meet market expectations.

In a cry of "recession, imminent weakness, and possible recession", the economic scale of the United States in 2023 is bound to achieve a breakthrough of 27 trillion US dollars, and the global proportion will once again exceed a quarter, and it is still the only superpower.

The U.S. economy, why not a recession?

The primary reason is that American residents still have a lot of money to spend. As of June this year, the balance of deposits of American households and nonprofit organizations was $17.786 trillion.

Excluding $730 billion in nonprofit deposits, the balance of household deposits in the United States is as high as $17.056 trillion, with per capita deposits of $51,100. With so much money, it is possible to enter the consumer market at any time, becoming the biggest driving force for the US economy for many quarters.

Then there's the excess savings. The San Francisco Fed said that as of the end of September this year, U.S. households had accumulated about $430 billion in excess savings during the epidemic (as shown in the figure above), and predicted that these excess savings are likely to continue until the first half of 2024.

In other words, at least for the next two or three quarters, private consumption in the United States will remain relatively vigorous. Coupled with the additional boost effect brought by the income of employed people in the United States exceeding the increase in CPI, it is difficult for consumption, a supporting factor, to be weak in a short period of time.

Then investment, including residential investment, equipment investment, intellectual property investment, inventory investment, etc., contributed 1.82 percentage points to US GDP in the third quarter of this year, which is the second largest supporting factor after private consumption.

From Obama and Trump to President Biden today, although they have different policy platforms, they are all actively promoting the "return of manufacturing to the United States", emphasizing the consolidation of supply chain security, and incorporating a number of emerging industries into the national security strategic development plan.

The investment expansion effect brought about by this has become an "important engine for supporting the development of the national economy" on a par with the consumption of American residents. Combined with the narrowing of the U.S. foreign trade deficit and the downward trend of inflation, we see that the resilience of the U.S. economy has exceeded market expectations many times.

Another reason why the U.S. economy is still in recession is:

The U.S. Department of Commerce revised the "Base Year Prices in the U.S. Economic Accounting Process," thereby raising the GDP base in previous years. In 2022, for example, the GDP size was announced at the beginning at $25.46 trillion, but after the rules were amended, the size of the US economy was revised upwards to $25.744 trillion – an upward increase of $281.4 billion.

This upward revision of $281.4 billion is equivalent to the total GDP of a lower-middle-income economy. Coupled with the impact of inflation, the real development of the economy, and the official consumption and investment expenditures brought about by high debts, how can the momentum of US economic development "decline as expected"?