At his State of the Union address early last month, US President Joe Biden proudly hailed the American economy as “the envy of the world”. It is hard to disagree. America has had the strongest post-pandemic economic recovery of all G7 nations. Annual inflation has fallen 6 percentage points from its summer 2022 peak, and the unemployment rate remains near record lows, even as interest rates have risen. To top it off, the S&P 500 is soaring.
Despite the impressive national economic data — which Biden reeled off in his speech — surveys suggest Americans put more faith in Donald Trump to handle the economy. Consumer sentiment also remains below pre-pandemic levels. What explains the disconnect? Rising political polarisation is one driver — Democrat voters do tend to be more optimistic about the economic outlook. But partisan divides are only part of the story. Ultimately, it is the economic realities of daily life that matter most to individuals. And in America’s colossal economy, what is true for the whole is rarely true for its parts.
The US economy is significantly larger than all other G7 economies — but also its most unequal by income. As in other advanced economies, globalisation, financialisation and automation have been behind a growing divide between urban and non-urban areas. Between 1980 and 2021, America’s geographic income inequality rose over 40 per cent, according to the US Department of Commerce. The Biden administration has placed emphasis on reindustrialising left-behind regions, but commitments from the Inflation Reduction Act and Chips Act will take time to deliver new factories and sufficient jobs on the ground.
These divides mean the strong headline economic numbers mask large differences in the lived experiences of households and businesses across the country. First, large urbanised areas — including tech and finance hubs — have driven economic growth since the pandemic, while smaller metro and rural areas have continued to lag behind.
Second, although inflation is falling nationally, the cost of living — which factors highly into voters perceptions of the economy — also varies widely. States including Nevada, Utah, Arizona and Idaho — where Biden’s approval ratings are currently polling below the US average — have also experienced above average price-level increases between January 2021 and the start of this year, according to data compiled by Moody’s Analytics. Quarterly transitions into debt delinquency are also trending well above the national average in Texas and Florida, where Trump continues to have strong support.
Third, consumer spending — which has been strong, despite the higher cost of credit — has been propped up by the wealthiest Americans, who are also benefiting from rising home and equity valuations. But there are significant signs of stress elsewhere. The share of newly delinquent credit card borrowers on lower incomes has risen above 2019 levels, the number of multiple jobholders has picked up, and even some discount retail stores are struggling.
Finally, while the attention has been on the “Magnificent Seven” tech stocks, optimism and hiring plans among small businesses — which employ close to half of the country’s private sector workforce — have been dropping.
America’s recent strength has surprised most. But dig beneath the surface and the country’s economic weaknesses — and its political divides — become clearer. For a nation the size of a continent, with vast inequalities, aggregate data is obscuring. As markets place bets on the US economy and politicians campaign, it pays to break it down.