Recession fears have indeed eased, and the economy has outperformed earlier predictions. In the beginning of 2023 and late 2022, many analysts anticipated a recession this year, but that scenario hasn't materialized. Notably, we observed robust growth in the first and second quarters, with third quarter growth reaching almost 5%. The economy has proven remarkably resilient, surpassing initial expectations.
A key factor contributing to this resilience is consumer spending, underpinned by a strong job market. As long as consumers can continue to spend, there's potential to avoid a recession. However, it's important to note that some slowing may occur, and whether this slowdown escalates into a recession by the end of this year or in 2024 remains an open question.
At the U.S. Chamber of Commerce, we interact with businesses of all types, from the world's largest corporations to the smallest enterprises, spanning diverse sectors. What's consistent across the board is that they are all actively seeking additional workers. Every single one of these businesses is in need of more employees, which has led to a continuous surge in job creation. For example, in September, we saw the addition of 336,000 jobs, surpassing expectations. It's essential to note that this growth is economy wide.
Regarding the headlines about layoffs, it's noteworthy that these instances have been more concentrated in the tech industry. During the COVID-19 pandemic and its aftermath, several prominent tech companies significantly expanded their workforce. However, they are now in a phase of right-sizing, which doesn't necessarily reflect economic necessity but rather the need to adjust their headcounts to more manageable levels.
In the context of a potential recession, the key point is that layoffs have been localized to specific sectors like tech. Unlike a typical recession scenario, where widespread layoffs affect various industries and business sizes, we haven't witnessed such broad-based layoffs. Therefore, if a recession does loom on the horizon, the question is whether these sector-specific layoffs will significantly impact the overall economic landscape.
The concept of deglobalization is indeed intriguing, and it traces back to the impact of COVID-19. The pandemic prompted a retreat to our homes, communities, and even our respective countries. It became apparent that the United States, in particular, was going to take measures to reshore production, particularly in critical areas such as pharmaceuticals, personal protective equipment (PPE), and national security-related industries. This was reflected in key federal bills during the Biden administration, including the infrastructure bill, the CHIPS Act, and the Inflation Reduction Act. These bills included significant subsidies aimed at fostering domestic production, especially in technologically advanced sectors like electric batteries and superconductors.
However, what remains uncertain is the sustainability of this trend moving forward. While there has been substantial growth as a result of these subsidies, a fundamental economic question arises. Are we genuinely getting value for the dollars invested in these industries, given that some of the raw materials required for these products, like rare earth elements, are not readily available domestically? The question of whether the benefits outweigh the costs remains open. At the moment, it seems the incentives will persist, but there may be future considerations and potential pushback as the economic landscape continues to evolve.
Looking ahead to 2024, it's likely that the economy will experience a slowdown early in the year, with a pick-up in the middle to late part of the year, setting a positive trajectory for 2025. Unlike previous major shocks, such as the 2007-2009 financial crisis, the current economic situation seems more robust, with no domino effect of crises unfolding. Once inflation becomes less of a concern and the economy adapts to higher interest rates, we can anticipate a period of strong growth.
However, there are important variables to consider from the political landscape. In 2025, several tax-reducing policies from the Tax Reform Act of 2017-2018 are set to expire. This could result in higher tax rates for small businesses and other tax increases, which may have a negative impact on the economy.
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