As 2024 closes, soak in the exceptional economy, economist Mark Zandi says

I don’t think it is hyperbole to say that the U.S. economy’s performance this past year is the best I have seen in my 35 years as a professional economist. You should soak it in, savor it, as years like this one are rare.

Pick your economic statistic — from real GDP, to job growth, to unemployment — the economy’s performance has been nothing short of exceptional.

Inflation had been a serious blemish, especially on how many of us view the economy’s performance, but that, too, has settled. Grocery prices and rent had been especially nettlesome, but they have gone largely sideways over the past year-plus.

Helping to power the economy has been the surge in immigration. While the large number of immigrants coming here has posed challenges to many communities, many of the immigrants have quickly gone to work. This has eased the labor shortages that have crimped businesses’ ability to hire and expand their operations.

Businesses have also been able to produce more with less labor, as workers’ productivity has picked up. This is probably attributable in part to the job shuffling that occurred during the pandemic. Many of us quit jobs and took new ones that are better suited to our interests and talents. We are much happier and more efficient in our new jobs.

The extraordinary number of new businesses that have started up since the pandemic hit, perhaps empowered in part by remote work, has also contributed. New businesses are much more likely to create and use new technologies that drive productivity.

Consumers have been big beneficiaries of all the jobs and income this creates, and have thus been spending strongly. It is too early to know for sure how the Christmas buying season will end up for retailers, but early indications suggest it will be a merry one.

Of course, the economy has been especially good for high-income and wealthier households, who became much wealthier with the run-up in stock and house values. A lot of extra cash is still sitting in their bank accounts built-up during the pandemic shutdown when they couldn’t spend money.

Lower-income households haven’t fared nearly as well — they don’t own much in the way of stocks, or even homes, and they blew through their pandemic savings long ago. Many are also struggling with credit card debt and consumer finance loans, which they took on when inflation was higher to supplement their income and maintain their purchasing power.

However, those in the top one-third of the income distribution typically account for well over half of consumer spending, while those in the bottom one-third comprise less than one-seventh. While this is not desirable, as it likely speaks to the nation’s fractured politics and social unease, it explains the strength of consumer spending this year.

Businesses are also investing strongly and contributing more than their fair share to growth. Bigger companies, in particular, are enjoying ample profits and ready access to capital given their soaring stock prices. The tax subsidies provided via the CHIPS Act and the Inflation Reduction Act have also super-charged investment, particularly in the semiconductor business and in other advanced manufacturing.

These tax breaks notwithstanding, the totality of federal government tax and spending policies doesn’t do much to explain the economy’s growth. The nation’s budget deficit is painfully large, but the change in the budget deficit is what matters to growth, and the deficit as a share of GDP hasn’t changed much in the past several years.

International trade also has had no meaningful net impact on growth. The nation is running a sizeable trade deficit, but it is also the change in the net trade balance — the difference between exports and imports — that matters for growth, and that hasn’t changed much since the global financial crisis.

The U.S. economy’s exceptional performance stands out from much of the rest of the world. China’s economic problems are well known and there has been considerable handwringing about lagging productivity and overall economic growth in Canada, Europe, Japan, and the U.K.

U.S. lawmakers’ and the Federal Reserve’s much more aggressive response to the pandemic certainly helped. But just as important are the U.S. economy’s more flexible job market — which facilitates its adjustment to shocks such as the pandemic and the Russian war in Ukraine — ample energy resources, and the boom-like growth in artificial intelligence and other fast-advancing technologies.

The U.S. economy has performed exceptionally well and should be able to overcome most any challenge it faces next year.

That’s a good thing, as there are sure to be significant challenges. I can quickly think of a few, not least of which are the big changes to economic policy likely with the incoming Trump administration, but that’s a topic for future discussion.