ICYMI: The Economic "Miracle" of 2023

The reviews of the 2023 economy are in: The year that was predicted to have a recession was instead an economic "miracle." Last year "exceeded expectations" and was "a boon for the average American worker — and one of the most triumphant for organized labor in a generation." It was "the year of remarkable resilience" and "the outlook for 2024 is similarly healthy."

From rising wages and falling inflation to increased wealth, Americans are better off than they were a year ago—and for that President Biden "deserves more credit than he's getting."

Read more below:

Washington Post (Opinion): There's a reason the U.S. economy soared and others were mediocre
[Heather Long, 12/29/23]

There's only one appropriate word to describe the U.S. economy in 2023: "miracle." Many experts said a recession was inevitable. They said there was no way inflation would ease without massive job losses. They were wrong. Not only was there no recession in 2023, but growth accelerated as the year progressed. Inflation cooled sharply (from 6.4 percent to 3.1 percent), and the economy added more than 2.5 million jobs. This doesn't mean everything was perfect, but it's important to celebrate the economic equivalent of an underdog athlete winning gold. And to ask: How did it happen?

The most straightforward explanation is that it took a lot longer than almost anyone predicted to get back to normal after the pandemic. Inflation also turned out to be largely caused by supply problems. That's unusual. Normally, demand is what causes prices to spike. The Federal Reserve then hikes interest rates to kill demand, but this typically brings big job losses and a recession. This round was different because, after the pandemic, it took a long time to fix supply chains. Plus, there was a labor supply problem, as it took a while to get enough people back to work. As supply glitches abated in 2023, inflation subsided around the world.

[…]

The massive U.S. government stimulus clearly worked. It boosted savings and kept millions out of poverty during the worst of the pandemic. It also fueled rapid rehiring, which gave people bigger incomes to spend. Other countries had strong fiscal responses as well, but the United States' was one of the biggest.

[…]

While spending will likely slow in 2024, be careful betting against the U.S. consumer. As for Biden, he deserves more credit than he's getting.

New York Times: More Than Words: 10 Charts That Defined 2023
[Steve Rattner, 12/28/23]

The Economy Exceeded Expectations

The economy was projected to lose 10,400 jobs a month. Instead, it gained an average of 232,000 a month.

The unemployment rate, which started 2023 at a five-decade low, was projected to rise to nearly 5 percent by the end of the year. Instead it ticked up only trivially, to 3.7 percent.

More than 80 percent of economists predicted that 2023 would end in a recession. Instead, the economy is likely to have expanded by a remarkable 3 percent.

On top of that, the stock market boomed. In 2023, the S&P 500 index rose to near record highs, powered primarily by the technology stocks known on Wall Street as the magnificent seven — Apple, Amazon, Alphabet, NVIDIA, Meta, Microsoft and Tesla.

CNN: 5 reasons to be optimistic about the 2024 economy
[Matt Egan, 1/1/24]

Many feared 2023 would be the year of recession. It turned out to be the year of remarkable resilience.

The US economy appears to be enjoying the soft landing many argued was nearly impossible.

Inflation has cooled dramatically, unemployment remains low and the Federal Reserve could deliver rate cuts as soon as March.

"The big story of 2023 is we stuck the landing," Justin Wolfers, professor at the University of Michigan, told CNN.

Wolfers noted the economy didn't just bounce back from the fastest recession ever, but it overcame the war in Ukraine, oil price shocks, political dysfunction and countless other issues.

"It's the little engine that could," Wolfers said of the economy. "Given how bad the shocks were, this could have been so much worse."

Axios: Why 2024 could be a year of American optimism
[Felix Salmon, 1/3/24]

The big picture: The U.S. boasts the strongest economy of any rich nation. The much-predicted 2023 recession failed to appear, employment has remained robust, real wages have been rising, and the outlook for 2024 is similarly healthy.

Crime is also down substantially, with homicides falling at a near-record rate in 2023.

Between the lines: Americans are already showing signs of confidence and prosperity in their spending. They happily shelled out more money than ever on holiday gifts in December, for instance.

As Axios' Matt Phillips has pointed out, people tend to spend a lot — especially on discretionary items like boats — when they're feeling optimistic about their ability to continue earning good money well into the future.

Washington Post: Blue-collar workers won big in 2023, defying bleak predictions
[Lauren Kaori Gurley, 12/30/23]

A year that started out with bleak prospects, including a widely predicted recession, shaped up to be a boon for the average American worker — and one of the most triumphant for organized labor in a generation.

More than 525,000 workers in the United States walked off the job in 2023, according to Bloomberg Law's database of work stoppages, making it one of the three biggest strike years since 1990. Many of those strikes led to big concessions from employers, such as the landmark deal reached by the UAW in October.

Employers agreed to pay more for workers because of a historically tight labor market, meaning it proved more economical to boost wages and benefits than to try to find new workers or risk losing current ones.

The unemployment rate, a key indicator of the labor market's health, has remained below 4 percent for two years as of November, a stretch last accomplished in the 1960s. And hourly wage growth began to outpace inflation this spring after years of falling behind, boosting workers' standard of living, especially the lowest earners.

"Resilience was really the theme for the labor market in 2023," said Daniel Zhao, lead economist at the jobs site Glassdoor, noting that the market created a ripe environment for a heightened number of workers to strike. "We entered the year with significant headwinds. But as the year progressed, the labor market was able to continue powering forward."

[…] Recession fears faded as stronger-than-expected consumer spending pushed employers to keep hiring at a healthy clip. Fierce competition for workers has pushed employers to continue to raise wages, with the bottom 25 percent of wage earners seeing the biggest wage gains this year, according to data from the Federal Reserve Bank of Atlanta.

Justin Wolfers, an economist at the University of Michigan, called 2023 "genuinely a banner year for the working class and low-paid workers," noting the economic recovery since covid has been strongest for those on the lower end of the income scale.

"Low unemployment is the most important thing raising the stock of American workers," he said. "The second most important thing is they've managed to negotiate quite substantial real wage gains."

The strength of the labor market played a crucial role in a series of strikes that helped secure the strongest union contracts in decades across a variety of industries this year.

[…]

Shenika Brown, who cleans hospital beds and operating rooms for Kaiser in Irvine, Calif., said she expects her pay to jump from $20 to $25 an hour when the first contract gains kick in with her next paycheck. This year she regularly picked up 16-hour shifts, which ran from 7 a.m. to 11:30 p.m., and that meant not seeing her 3-year-old son after getting home.

"I was missing out on a lot of family time," Brown said. "The question was, 'Am I putting gas in my car or do I eat this week? I ate 25-cent noodles. All eating out had to stop. This raise will change that."

[…]

More vulnerable groups of workers are faring remarkably well compared with previous periods of economic recovery. The unemployment rate for Black workers, which is often double the White unemployment rate, hit an all-time low in May, at 5 percent, though it has since risen to 5.8 percent. And the unemployment rate for those without college degrees also dropped near its lowest point on record. Typically, higher wage earners recover their losses faster, as they did after the 2008 Recession, but the pandemic recovery turned that logic on its head.

"Whenever the economy slows, the first people hurt are the working class," said Wolfers, the University of Michigan economist. "It's remarkable that this has been a recovery that has delivered a huge amount for production and nonsupervisory workers."