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Resilient U.S. Economy Defies Expectations

Strong hiring and spending are keeping recession at bay—for now

There’s a saying that economic expansions don’t die of old age: They’re murdered by the Federal Reserve. If that’s the case, then the U.S. economy is outrunning its would-be assailant this year.

Steady hiring and robust consumer spending offer the latest evidence that the pandemic’s effects and the government’s unprecedented policy responses made the economy surprisingly resilient to the Fed’s most aggressive interest-rate increases in 40 years.

Employers added 3.1 million jobs over the past 12 months, including 187,000 in August, the Labor Department said Friday. The unemployment rate rose to 3.8% from 3.5% in July as more Americans joined the workforce.

Three factors explain why the U.S. economy keeps defying predictions of recession.

First, a growing workforce and slower price increases have boosted Americans’ inflation-adjusted or “real” incomes this year, fueling more hiring and spending.

Second, the unusual nature of the Covid-19 pandemic distorted spending patterns, leading to shortages of goods, housing and workers. This created enormous pent-up demand that has been less sensitive, for now, to higher rates.

Third, the government initially showered the economy with cash and held interest rates at rock-bottom levels, allowing businesses and consumers to lock in lower borrowing costs. Subsequent legislation, including the Inflation Reduction Act and the $53 billion Chips and Science Act, further boosted federal spending and spurred additional private-sector investment in manufacturing.

Source WSJ

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