The resilience of the US economy has left many observers bewildered, particularly when contrasted with the struggles faced by other developed nations under the weight of geopolitical tensions, trade disruptions, and energy market volatility. Yet, despite these headwinds, the American economy continues to expand at an annualised rate of approximately 2%, a testament to its enduring dynamism.
One key factor driving this sustained growth is corporate investment strategy. According to Joe Brusuelas, chief economist at RSM, capital expenditure (CapEx) currently stands at a substantial 13.9% of US GDP – a significant proportion in the current economic climate. Rather than retrenching, US corporations have responded to challenges such as tariffs on foreign components by increasing investment, thereby leading to a notable rise in productivity. This proactive approach is seen as a hallmark of American economic resilience.
Energy independence has also played a crucial role. Historically, rising oil prices due to conflicts would pose a significant threat to US economic growth. However, the shale revolution over the past two decades has transformed America into one of the world's largest oil and gas producers, substantially reducing its exposure to external energy shocks. As Brusuelas notes, oil's contribution to GDP per unit has halved over the last 50 years – a stark contrast to Europe, where reliance on long-term contracts and interconnected supply networks left many countries vulnerable when Russian gas supplies were curtailed.
Beyond economic policy, cultural attitudes towards risk and business financing structures appear to contribute to the divergence. According to Rebecca Christie, senior fellow at Bruegel, Americans tend to be more solutions-oriented and comfortable with short-term risks for long-term gains, whereas European culture is often more risk-averse. This difference is reflected in how businesses are financed: US companies frequently tap into investor capital and stock markets, offering greater flexibility, while European businesses often rely heavily on bank loans. This structural difference can impact a company's ability to adapt and invest during periods of economic uncertainty.
For UK households and businesses, understanding the drivers of US economic strength is crucial. A strong US economy can bolster global demand, potentially benefiting UK exporters and companies with significant US market exposure. Conversely, it also influences global interest rate expectations – a key consideration for the Bank of England, which often looks to the US as a benchmark for monetary policy decisions.