At his State of the Union address early last month, US President Joe Biden proudly hailed the American economy as “the envy of the world”. It is hard to disagree. America has had the strongest post-pandemic economic recovery of all G7 nations. Annual inflation has fallen 6 percentage points from its summer 2022 peak, and the unemployment rate remains near record lows, even as interest rates have risen. To top it off, the S&P 500 is soaring.
Despite the impressive national economic data — which Biden reeled off in his speech — surveys suggest Americans put more faith in Donald Trump to handle the economy. Consumer sentiment also remains below pre-pandemic levels. What explains the disconnect? Rising political polarisation is one driver — Democrat voters do tend to be more optimistic about the economic outlook. But partisan divides are only part of the story. Ultimately, it is the economic realities of daily life that matter most to individuals. And in America’s colossal economy, what is true for the whole is rarely true for its parts.
The US economy is significantly larger than all other G7 economies — but also its most unequal by income. As in other advanced economies, globalisation, financialisation and automation have been behind a growing divide between urban and non-urban areas. Between 1980 and 2021, America’s geographic income inequality rose over 40 per cent, according to the US Department of Commerce. The Biden administration has placed emphasis on reindustrialising left-behind regions, but commitments from the Inflation Reduction Act and Chips Act will take time to deliver new factories and sufficient jobs on the ground.