The US economy is the envy of Europe and the UK – so why is it suffering from ‘vibration’?

In these circumstances, the figures could hardly look better.

A year or two ago, the popular belief was that America was facing a terrible recession.

Instead, according to the latest data from the International Monetary Fund, the United States has outperformed virtually every other major economy in the world (including China).

In his latest World Economic Outlook report — the most closely watched set of international forecasts — it has improved the United States more than almost any other major economy.

From a European point of view, there is reason to be jealous of recent American performance (most European countries, including the United Kingdom, have seen the IMF revise their growth forecasts downwards).

Yet here is the conundrum. Despite this relatively strong economy, despite a lower inflation peak than that of most European countries (particularly the United Kingdom), American consumer confidence remains gloomy.

It’s not just Europeans who find this perplexing. The White House too.

They injected cash into the manufacturing sector just when it needed it, through a series of costly programs, including the CHIPS Act (to bring semiconductor manufacturing back home) and the Reduction Act. inflation (to encourage green technology companies to set up factories in the country). WE).

The idea was that in the depths of the pandemic, America would “build back better” – that is, Biden would imitate Franklin D. Roosevelt and his New Deal of the 1930s.

And most conventional statistics suggest the strategy is paying off. Employment in the manufacturing sector is increasing; factories are being built at the fastest pace in modern history. And gross domestic product – the most comprehensive measure of production – is rising. Unlike the United Kingdom or in Germany there was no recession.

So why is consumer confidence so low? Why are Biden’s approval ratings – the main polling benchmark for the US leader – lower than those of virtually all of his predecessors at this point in their terms?

To travel Pennsylvaniaas we have done in recent days, and you encounter all kinds of explanations.

It’s inflation, stupid

Food banks are getting busier; And while some businesses are starting to see that federal money flowing in, many programs are still in the approval stage. The money hasn’t arrived yet.

But above all, we hear a recurring response: it is the Cost of life. These are food prices, gas prices, rents.

And there’s also a big gap here between life through an economic lens and life lived on Main Street in places like Bethlehem, Pennsylvania – an old steel town trying to reinvigorate its economy.

Talk to an economist and he will remind you that inflation – the rate at which prices have moved over the past year – is finally starting to decline. But even if this is statistically true, it misses some pragmatic realities.

First, prices are not falling; they are simply increasing a little slower than before. The pressure hasn’t gone away.

Second, while economists often focus on how the consumer price index has changed over the past year (3.5% in March), what the rest of the population notices is the evolution of prices over a longer period.

Over the past two years, prices have increased by about 9%. Over three years, they are up 18%.

In other words, the explanation for the “vibration”, as economists have called it (there is no formal recession but the mood is bad), could actually be exceptionally simple: it is inflation, stupid.

In Pennsylvania, perhaps the most critical swing state in the United States, the question is whether Donald Trump can capitalize on this disaffection to win back citizens who abandoned it the last time.

In the meantime, the Biden White House is biding its time, hoping that the New Deal economic playbooks they followed to inject liquidity into the economy are truly trustworthy.