United States: Weak start to the current year

The latest figures show trade activity continuing its upward path. In the first quarter 2022, global exports increased by 3.5 percent year on year. Exports from the advanced economies increased by 2.1 percent in the first quarter, clearly outperformed by exports from emerging countries which increased by 6.2 percent. For 2022 overall, global trade is expected to increase by five percent.

United States: Weak start to the current year

Economic development

After taking a hard beating from the Covid crisis in 2020 and contracting by 3.4 percent, the economy of the United States registered a solid performance in 2021. Overall growth for the year was 5.7 percent, the strongest growth seen since 1984. The main drivers were strong private consumption and private investment as well as expanding residential construction with the lifting of Covid restrictions and the general easing up of the pandemic. In the current year, growth is being hampered by the Fed’s interest rate turnaround, the tight labour market, China’s zero-Covid strategy, and the war in Ukraine. Although the war in Ukraine does not have as strong an economic impact on North America as it does on Europe, the United States can also expect to feel negative effects in the shape of lower growth among key trade partners and higher commodity prices. According to the second estimate of the Bureau of Economic Analysis BEA, U.S. GDP contracted by 1.5 percent in the first quarter of 2022 (seasonally adjusted at an annualised rate). The reasons for the drop are a reduction in private inventory investment, exports, and government spending combined with an increase in imports. Personal consumption expenditures and fixed investment, on the other hand, increased (BEA 2022a).

For 2022 and 2023, the OECD now expects growth of 2.5 percent and 1.2 percent respectively (OECD 2022). In April, the International Monetary Fund (IMF) forecast 3.7 percent growth for 2022, 2.3 percent in 2023, and a much lower 1.4 percent in 2024 (IMF 2022). The European Commission expects growth of 2.9 percent for this year and 2.3 percent for next year (European Commission 2022). We forecast overall growth in 2022 of three percent in real terms.

The unemployment rate in the United States was at 3.6 percent in May, which is almost the prepandemic level of 3.5 percent (BLS 2022a). At the same time, many Americans who withdrew from the labour market in the wake of the Covid crisis are not yet actively looking for work again. The labour force participation rate, which is the proportion of the working population that are either in work or actively looking for work, was at 62.3 percent in May and is therefore still below the pre-Covid level of 63.4 percent registered in February 2020 (BLS 2022b). The persistent labour shortage is putting upward pressure on wages and additionally increasing the risk of inflation. Total employment in the United States is expected to increase from 153.5 million in 2020 to 165.4 million in 2030, according to figures from the Bureau of Labor Statistics (BLS 2021). Unemployment is therefore likely to remain at a low level or even slightly fall further. The European Commission, for example, is expecting unemployment in the United States to come in at around 3.5 percent in 2023 (European Commission 2022).

Prices are rising steadily in the United States. In May, the Consumer Price Index (All Urban Consumers, CPI-U) was up 8.6 percent compared to the same month last year (before seasonal adjustment), according to figures from the Bureau of Labor Statistics. The price hikes in gasoline (April: up 48.7 percent compared to April 2021) and fuel oil (up 106.7 percent compared to April 2021) were particularly pronounced (BLS 2022c).

The high rate of inflation and rising interest rates are also weighing down consumer sentiment. Sentiment among U.S. consumers has deteriorated overall, according to the U.S. Consumer Confidence Survey. In May, the Consumer Confidence Index stood at 106.4 points compared to the 113.8 points measured in January (The Conference Board 2022). Private consumption expenditure nonetheless increased steadily throughout the first quarter 2022, with the latest figures showing an increase of 0.9 percent in April compared to the previous month. At the same time, the household savings rate has decreased continuously, from six percent in January down to 4.4 percent in April. During the acute phases of the pandemic, the savings rate had temporarily climbed over 25 percent (April 2020: 33.8 percent; March 2021: 26.6 percent) (BEA 2022b).

Foreign trade

In the first quarter of 2022, the United States exported goods and services worth around 705 billion U.S. dollars. That corresponds to a growth of 2.7 percent compared to the fourth quarter 2021. Imports in the first quarter 2022 amounted to around 988 billion U.S. dollars. They increased significantly more than exports compared with the previous quarter: by 8.4 percent. In the first quarter of 2022, the trade deficit (goods and services) amounted to around 284 billion U.S. dollars (BEA 2022c). In light of the current strength of the U.S. dollar, imports are expected to carry on growing in the further course of the year.

Fiscal measures under the Biden administration and government debt

Following the American Rescue Plan and the Infrastructure Investment and Jobs Act last year, there are currently no other extensive spending packages on the horizon. The Build Back Better Act, a key element of President Biden’s domestic policy agenda, sets out assistance for childcare and healthcare as well as investment in climate protection. The House of Representatives passed the legislative package in November 2021 with the votes of the Democratic majority. In the Senate, however, not all 50 Democrat senators whose votes would be needed to pass the budget reconciliation bill (together with the vote of the U.S. vice president) have been able to reach agreement as yet. It now looks like the Build Back Better Act as a whole has relatively little chance of being passed before the midterm elections in November. Individual elements of the original legislative package could be included in other pieces of legislation. The fiscal incentives that will now likely not materialise are another reason for the stunted growth prospects of the U.S. economy.

Without any further large-scale spending packages this current fiscal year, the budget deficit is set to decrease. According to forecasts by the Congressional Budget Office (CBO), it will drop from 12.4 percent of GDP in the fiscal year 2021 to 3.9 percent in the current year and 3.7 percent in 2023. After 2023, the CBO expects the deficit to rise again, up to 6.1 percent by 2032. This would take the budget deficit to well above its 50-year average of 3.5 percent. According to CBO estimates, the debt ratio of 100 percent of GDP in 2021 will drop down to 96 percent in 2023. The rapid growth of nominal GDP, caused by both the high rate of inflation and real GDP growth, means that debt as a ratio of the economic output of the country will initially remain low. Given the increasing budget deficits projected by the CBO after 2023, the debt ratio will then rise steadily to reach 110 percent of GDP by 2032, which would be the highest rate ever. The main reasons for the expected increase are primarily rising interest expenses as well as rising expenditures for Medicare (health insurance for elderly citizens) and Social Security (federal pension insurance) (CBO 2022).