Global share markets are all doing well (except for China), but it is the US that is leading the charge. American exceptionalism is once again showing the way, handily outperforming its largest global peers.
Source: Axios, January 2024 IMF World Economic Outlook
The US grew faster than other major advanced economies last year and looks poised to do so again in 2024. The reasons it is outperforming are a combination of some underlying strengths of the US economy, but also reflect good policy choices and good luck.
Strong GDP growth in 2023 was driven by a combination of growth in both the labour force and productivity. The US had both more people working and delivered more economic output for each hour worked. A significant part of the gain can be explained simply by there being more workers; the US labour force expanded by 2.5 million people (about twice the population of Hawaii) throughout 2023, reflecting both immigration and native-born Americans joining the workforce. People vote with their feet: millions are trying to get into the US – you don’t find countless migrants trying to migrate to China or Russia!
Another important part of the story is a massive shift during the pandemic and its aftermath in which American workers shifted toward higher-wage, higher-productivity work. In contrast, Europe and Japan remained tied to their pre-COVID jobs, as government policies incentivised keeping people on existing payrolls rather than offsetting lost income with unemployment benefits and cash payments.
Strong 2023 US productivity gains reflect federal investment in manufacturing capacity — one of the Biden administration’s signature achievements, which helps account for the superior growth results in the US versus the rest of the G7 (Group of Seven – an intergovernmental political and economic forum consisting of Canada, France, Germany, Italy, Japan, the United Kingdom and the US). The benefits of a full employment economy incentivises companies to be more creative and aggressive in finding new ways to make their workers more productive.
Other reasons for US exceptionalism:
- It remains the home of the biggest and the best technology companies, driven by a strong entrepreneurial culture which rewards risk taking;
- Is home to the world’s best universities and science labs add to the mix;
- Let’s not forget about being one of the world’s largest (if not the largest) energy and food producers.
Pity their politicians aren’t also the world’s best in class.
The US share market is now trading at an unprecedented 33% premium to European stocks. In Europe, there is no Apple, no Microsoft, no Google, no Facebook, no Tesla, no Nvidia, no Amazon … you get the picture.
Source: Bloomberg
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