Economy of USA

Over the past 30 years, the USA has outpaced other developed countries in terms of real GDP growth rate . The Americans are characterized by an extremely low savings rate (Figure 1), which signifies a high marginal propensity to consume. This supports high demand within the economy. The highest savings rates were observed during the year of Covid-19 lockdown.

 

Figure 1. Personal Saving Rate, USA (1960 – 2024)

Source: Federal Reserve Economic Data.

 

The average annual GDP growth since 1990 amounted 2.46% . However, the trends in social development   in the country have been rather negative: over the past 10 years, life expectancy has decreased (from 78.84 years in 2014 to 76.33 in 2021), birth rates have declined (from 12.5 children per 1,000 inhabitants in 2014 to 11 children per 1,000 in 2021), and mortality rates have increased (from 8.24 per 1,000 inhabitants in 2014 to 10.4 in 2021).

Except for the 2008–2009 financial crisis, which was a significant shock for the USA since more than 20% of the GDP is comprised of financial, insurance, and real estate activities, the economics of the USA have been relatively stable. 

A significant part of government expenditures in the USA is allocated to military spendings (Figure 2). From 2002 to 2011, during the second presidential term of Barack Obama, these expenditures grew each year by $50–70 billion or an average of 6.25% per year , and after Trump's election, they resumed growth.

 

Figure 2. US Military Spending, billion current US dollars (2000-2022)

Source: Statista.

 

The funding for US military programs significantly increased due to the conflict between Russia and Ukraine. Military spending approached the level of $1 trillion or about 3.4% of GDP in 2022 . In 2023, the military budget remained approximately the same, amounting to $916 billion. By 2038, funding is expected to increase by another 10% in absolute terms. However, relative to GDP, a reduction to 2.5% is expected by 2034. 

The trade balance (Figure 3) has remained negative (since 1974), reaching its lowest values during the global pandemic. The USA is an importing country, financing the consumption through external borrowing and capital inflows.

 

Figure 3. Trade balance in Goods and Services of US (2012–2022), billion dollars

 

Source: Statista.

 

Currently, the national debt (including debt held by government and regional administrations) stands at 122% of GDP (Figure 4) . According to forecasts by the US Government Accountability Office, if current budget policies remain unchanged, the national debt will reach 200% of GDP by 2050.

 

Figure 4. U.S. National Debt. (1990–2023)

 Source: US Department of Treasuries.

 

Meanwhile, the US dollar remains the primary currency for international trade and finance, allowing the dollar exchange rate to be relatively stable.

 

Figure 5. Share of Currencies Used in International Transactions (2019–2024).

Source: Statista.

 

Over the past thirty years inflation has been relatively low. Significant price acceleration occurred after the lockdown (Figure 6) due to the realization of pent-up demand amid disruptions in domestic and international logistics chains, temporary increases in energy prices  and exceptionally loose monetary policy (the key rate was reduced to a record low  of 0.07%–0.1% in 2020 and maintained at this level until February 2022, with increased volumes of quantitative easing programs ).

 

Figure 6. Inflation in the U.S. (1990–2022), %

 

Source: Statista.

 

To lower the inflation, the Federal Reserve raised the key rate to 5% at the beginning of 2023. Additionally, in August 2022, the president signed the Inflation Reduction Act , under which the USA is increasing investments in green energy sources to reduce the economy's dependence on global hydrocarbon prices.

The USA has also successfully invested in and developed shale oil and gas extraction. As a result, dependence on hydrocarbon imports, primarily cheap Arab hydrocarbons, has decreased, and production levels have increased (except during the pandemic period). Despite production volumes and sector activity exceeding pre-COVID levels, there was some decline in output in 2024 (Figure 7).

 

Figure 7. Oil and Gas Extraction, to 2017 Levels in the U.S. (2005–2024)

 

Source: Federal Reserve Economic Data.

 

Since the 2008–2009, except for a brief period of recovery growth, the US manufacturing industry has been stagnating. A significant reduction in output was also observed during the lockdown, and currently, output is at the 2019 level (Figure 8).

 

Figure 8. U.S. Manufacturing Industry Output, to 2017 Levels (2000–2024).

 

Source: Federal Reserve Economic Data.

 

The retail sector has demonstrated high and stable growth rate (Figure 9). The sector's decline was moderate during both the 2008–2009 financial crisis and the pandemic. The exponential growth of the sector after the lockdown was a significant factor in driving inflation. Currently, the sector's dynamics correspond to potential growth, allowing the Federal Reserve to ease monetary conditions.

 

Figure 9. Retail Trade Sales (2006–2024)

 

Source: Federal Reserve Economic Data.

 

The overall unemployment rate in the USA was at level of 3.5%–3.7% at the end of 2023, as the economy returned to potential growth rate (Figure 10). Youth unemployment also decreased (Figure 11). This continued after the lockdown (with a slight deviation during the pandemic), and currently, youth unemployment stands at 7.8%–8%, which is higher than in Germany (5.5%) or Japan (3.9%), but lower than the EU average (9.5% for women and 15.6% for men) . 

Figure 10. U.S. Unemployment Rate (2006–2024)

Source: Federal Reserve Economic Data.

 

 Figure 10. U.S. Youth Unemployment Rate (2006–2024)

Source: Federal Reserve Economic Data.

 

In 2023, the main anti-crisis support subsidiaries were closed as the USA largely overcame the consequences of the pandemic. The financial sector, anticipating tighter monetary policy in 2022, reacted ahead of time, and in the first half of 2022, the Dow Jones index fell by more than 10% (Figure 12). The increased level of systemic risk and uncertainty resulting from the Russia-Ukraine conflict also reduced confidence and worsened growth prospects for the financial sector. Negative dynamics were also observed in the S&P 500 index during this period (Figure 13).

The "March Turmoil" of 2023, caused by the collapse of Silicon Valley Bank and several banks associated with the high-tech sector, was a negative shock for the American financial market and banking system . The Fed launched a program of supporting loans with a maturity of up to one year, which helped mitigate risks in the US banking system .

Since the end of 2024, stock indices have shown intensive growth due to slowing inflation in the USA, improved global economic growth prospects, and strong performance by companies of IT sector. According to various estimates, the development of information technologies (generative artificial intelligence) has increased labor productivity by 1.5%–2% .

 

Figure 12. Dow Jones Industrial Average (2019–2024)

  

Source: Federal Reserve Economic Data.

 

Figure 13. S&Ps 500 (2019–2024)

  

Source: Federal Reserve Economic Data.

 

According to some experts , the sanctions imposed on Russia and the retaliatory countersanctions were one of the reasons for accelerating inflation in the USA due to rising fuel and agricultural product prices, as Russia is one of the leading suppliers of these goods in the world. However, the greater impact on the US economy was caused by trade wars with China, as China is the main exporter of goods to the USA and one of its key trading partners. During Trump's presidency in 2018, the USA began raising tariffs on several Chinese goods . Since 2018, the average weighted tariff rate on Chinese goods increased from 3.1% to over 20% by the end of 2019, which, however, corresponds to China's level of tariff protection on imports from the USA. The tariff increases by the USA led to a significant reduction in Chinese exports to the USA (Figure 14).

 

Figure 14. U.S. Trade Volumes with China (2000–2022).

Source: US Bureau of Economic Analysis

 

The trade war cooled during the pandemic , but with the win of far-right parties in Taiwan advocating for the island's full independence, tensions between China and the USA are likely to escalate. As a result of the trade wars, many American companies began relocating production from China to other countries, such as Mexico, India, and ASEAN countries. Since 2018, import volumes from these regions to the USA have increased . 

The USA import semiconductors from TSMC and UMC. Instability in the Taiwan Strait region and the potential conflict between the "Chinas" was one of the reasons for the increasing the amount of semiconductor industry development programs in 2022.

Due to the EU's restriction to import Russian gas, the USA increased its LNG supplies to the EU, making 2023 the most successful year for American LPG and LNG exporting companies . The energy crisis in Europe, along with tax incentives introduced in the USA under the Inflation Reduction Act, stimulated the relocation of some European firms to the USA . These firms include high-tech companies like Miro, Hugging Face, Grammarly, and Talkdesk  , as well as mass-market brands like Kappa, Flutter Entertainment, and others. The delisting processes from the London Stock Exchange  and relocation to American stock markets to attract investments have significantly intensified.

 

In 2023, the real GDP growth of the United States amounted to 2.5%. The first quarter of 2024 fell short of expectations, with real growth reaching 1.6% instead of the projected 2.4% . This shortfall is attributed to the Federal Reserve's ongoing efforts to combat inflation, which remains above the target.

The real disposable income of households in the first quarter of 2024 saw a slight increase . Many low-income households have exhausted the savings accumulated during the pandemic and have reverted to using credit resources. In the context of high interest rate, the growth rate of consumption is slowing down (Figure 15).

 

Figure 15. Personal Consumption Expenditures, to 2017 Levels (2004–2024)

 

Source: Federal Reserve Economic Data.

 

 

Private investments, following the "March Turmoil" caused by the collapse of Silicon Valley Bank in mid-2023, have returned to growth, increasing by more than 4% from mid-2023 to April 2024 (Figure 16) . 

 

Figure 16. Gross Private Domestic Investment (2004–2024)

Source: Federal Reserve Economic Data.

 

The unemployment rate in the first half of 2024 remained near the all-time low level of 4% , showing a slight upward trend  due to layoffs in high-tech companies (Figure 10).

 

Monetary and Financial Sector 

The Federal Reserve successfully reduced the 2022 inflation rate without significant losses in number of jobs, as businesses generally maintained investment activity and household consumer spending increased in the second half of 2023. The sale of Treasuries by the Federal Reserve contributed to the reduction of the monetary base: since the beginning of 2023, assets worth $1.4 trillion have been sold . 

Amid optimism about the possibility of lowering the key interest rate, investment funds have significantly increased their leverage, making the volume of leverage close to all-time highest  .

Following the meeting on June 11–12, the Fed maintained the rate at 5.25–5.5%, which aligns with market expectations. The Federal Reserve notes the growth in economic but does not see the necessity to reduce the target range until there is greater confidence in the sustained approach of inflation towards 2%.

 

The budget deficit in May 2024 - $1.2 trillion . According to the Congressional Budget Office (CBO), the budget deficit for 2024 is expected to increase to $1.8 trillion (or 6.1% of GDP  ), which is 27% more than in 2023. Meanwhile, 2024 saw an increase in budget revenues compared to 2023, when tax relief measures were introduced to mitigate the effects of natural disasters (hurricanes, floods in the southern states, and wildfires in Hawaii ). The amount of tax deductions for households and entrepreneurs has also decreased. At the same time, budget expenditures related to debt servicing have increased by 42% ). Despite the reduction in expenditures from the pandemic-era peaks, their growth rate exceeds the previous trends (Figure 17). 

 

Figure 17. Government Total Expenditures (2004–2024)

 

Source: Federal Reserve Economic Data.

 

The United States significantly increased government investments in 2023 (Figure 18), continuing to grow at a high rate. This supports economic growth but also reduces budget sustainability, potentially requiring sharper fiscal consolidation in the nearest future.

 

Figure 18. Gross Government Investment (2002–2024)

 

Source: Federal Reserve Economic Data.

 

Expenditures related to Medicaid and Medicare have increased. The U.S. Congress approved an aid package of $95 billion for Ukraine and Israel. At the Peace Summit in Switzerland, assistance to Ukraine's energy sector amounting to $1.5 billion was announced . The student loan subsidy program could further increase the budget deficit by an additional $250–750 billion by the end of the year.

 

Since 2020, American exports has been growing, totaling approximately $3.1 trillion for the second half of 2023 and the first quarter of 2024. This growth caused in slight reduction in the trade balance deficit against the declining imports in 2023.

In the first quarter, the trade deficit decreased compared to the previous year due to an increase in the services trade surplus, which reached $23 billion in March 2024. Meanwhile, the goods trade deficit in March amounted to $92.5 billion. The inflow on the financial account of the balance of payments exceeds the deficit on the current account (Figure 20) due to portfolio investments from around the world.

 

Figures 19 and 20. Structure of Capital Inflows by Foreign Portfolio Investments and the U.S. Balance of Payments (2004–2024).

Source: International Monetary Fund.

 

In the structure of portfolio investments, long-term debt securities predominate, ensuring the stability of the U.S. balance of payments.