Macro Signposts | 14 November 2024
Economic Changes That U.S. Voters Want to See
Donald Trump's decisive reelection last week - winning the Electoral College and the popular vote while making inroads across nearly all demographic categories - has been hailed by many as a bold vote for change and a clear mandate for his agenda. Yet, as Adam Tooze, Columbia University historian, points out, across elections globally, incumbent parties have been losing as voters look for a change from post-pandemic economic performance and from painful price level adjustments that have left many worse off in real economic terms.
These more generalized election trends across countries are more interesting when they are compared with actual economic performance across countries. OECD metrics show that in contrast to almost everywhere else in the world, U.S. standards of living have not only improved over the past five years, they have soared. In other words, judging by aggregate economic performance, the U.S. is arguably in the least need of major changes.
Nevertheless, the aggregate statistics mask large differences in individual experiences across the income distribution. And the reality is many lower-income Americans, in particular, are not better off. As a result, American voters - like many elsewhere - voted for change, and based on Trump's first term and the narrow Republican majorities in both houses of Congress, Trump is positioned to make good on many of his campaign promises for change.
Given the economic change people are seeking is an economy with more equitable growth and real living standard improvements, policies that moderate inflation, increase efficiency, and support productivity are most likely to address the needs of American voters.
Economic strength and U.S. exceptionalism
Taking a step back from the election, consider the economy. As painful as inflation has been since the pandemic, the U.S. has fared much better than most other developed market economies.
Before the pandemic, U.S. living standards - measured by purchasing-power-adjusted per capita GDP - were among the highest in the world, 35%-50% above those in the euro area, the U.K., Canada, and Japan. Since 2019, the U.S. has maintained its lead. Outside of a few smaller eurozone countries, the U.S.'s economic performance surpassed that of all other OECD nations, with real per capita living standards soaring by 10%. This contrasts with Japan and the euro area, which have grown by only about 2%-3% over the same time frame, while living standards in Germany, the U.K., and Canada are now worse than before the pandemic.
What's more, the U.S. has recorded this expansion despite inflation that has been below the median of other OECD countries. America's cumulative 19% increase in its Consumer Price Index since 2019 is actually below the cumulative inflation in Germany, the U.K., and Australia over the same time frame.
These numbers reflect a remarkable U.S. post-pandemic productivity surge. Unlike any other country, the U.S. has surpassed its pre-pandemic productivity trend, driven by strong growth in nonresidential investment, particularly in intellectual property and research and development.
Overall, these trends suggest that compared with almost every other country, the U.S. economy is arguably less in need of drastic change.
So what happened? Although the U.S. economy has done better on average relative to most other regions, there are many who haven't enjoyed the gains. The aggregate statistics hide the fact that standard-of-living experiences across wealth and income levels are drastically different. According to the Fed's distributional accounts, real net wealth levels for lower-income populations are worse than they were in 2019, although the last five years have been a boon for more wealthy individuals.
Navigating uncertainty
Trump's win is likely to embolden him to implement the change that he promised. And those changes could have potentially meaningful implications for the economic outlook. A policy focus toward achieving fairer global trade, more efficient markets, and a more sustainable longer-term trajectory for U.S. government debt could potentially keep U.S. living standards rising. Implementing thoughtful immigration reforms that grow the productive labor force, streamlining regulations and project permitting limitations that have hindered investment, and opening up export markets for U.S. projects could also be big wins for businesses and workers.
On the other hand, ramping up trade tariffs without strategic gains, implementing mass spending cuts across government agencies, and pressuring the Federal Reserve could disrupt the economy: increasing uncertainty, delaying investment and hiring, and weakening U.S. exports. Stricter border policies could challenge businesses that rely on immigrants. Rising tariffs on capital goods could make it more expensive to invest in the U.S. - potentially amplifying inflationary pressure - while hurting the competitiveness of the U.S. export sector.
Takeaways
In the end, the U.S. economy has generally performed well over the last five years, although not every American has enjoyed that performance. Trump's agenda - rooted in disruption and change - could further strengthen the U.S. economy, keeping productivity and living standard gains the highest in the world, and broadening the economic benefits across the income distribution. It will be important to keep in mind that isolationist, populist policy agendas have historically stifled high productivity growth and haven't tended to strengthen the economic outcomes of the constituencies that need it most.
Catch up on recent editions of Macro Signposts:
Macro Signposts highlights weekly takeaways from the data analysis conducted by our team of economists and other macro experts. For PIMCO's official views on the global economy, please visit pimco.com.
We welcome your questions about the global macro landscape. Don't hesitate to suggest themes or data for us to analyze and discuss: Please email [email protected].
For regular insights on U.S. policy via email, please sign up here to receive PIMCO Washington Watch from Libby Cantrill, head of public policy.
The Organisation for Economic Co-operation and Development (OECD)
All investments contain risk and may lose value.
Statements concerning financial market trends or portfolio strategies are based on current market conditions, which will fluctuate. There is no guarantee that these investment strategies will work under all market conditions or are appropriate for all investors and each investor should evaluate their ability to invest for the long term, especially during periods of downturn in the market. Investors should consult their investment professional prior to making an investment decision. Outlook and strategies are subject to change without notice.
This material contains the current opinions of the author and such opinions are subject to change without notice. This material is distributed for informational purposes only and should not be considered as investment advice or a recommendation of any particular security, strategy or investment product. Information contained herein has been obtained from sources believed to be reliable, but not guaranteed.
PIMCO as a general matter provides services to qualified institutions, financial intermediaries and institutional investors. Individual investors should contact their own financial professional to determine the most appropriate investment options for their financial situation. This is not an offer to any person in any jurisdiction where unlawful or unauthorized. | Pacific Investment Management Company LLC, 650 Newport Center Drive, Newport Beach, CA 92660 is regulated by the United States Securities and Exchange Commission. | PIMCO Europe Ltd (Company No. 2604517, 11 Baker Street, London W1U 3AH, United Kingdom) is authorised and regulated by the Financial Conduct Authority (FCA) (12 Endeavour Square, London E20 1JN) in the UK. The services provided by PIMCO Europe Ltd are not available to retail investors, who should not rely on this communication but contact their financial adviser. Since PIMCO Europe Ltd services and products are provided exclusively to professional clients, the appropriateness of such is always affirmed. | PIMCO Europe GmbH (Company No. 192083, Seidlstr. 24-24a, 80335 Munich, Germany), PIMCO Europe GmbH Italian Branch (Company No. 10005170963, via Turati nn. 25/27 (angolo via Cavalieri n. 4), 20121 Milano, Italy), PIMCO Europe GmbH Irish Branch (Company No. 909462, 57B Harcourt Street Dublin D02 F721, Ireland), PIMCO Europe GmbH UK Branch (Company No. FC037712, 11 Baker Street, London W1U 3AH, UK), PIMCO Europe GmbH Spanish Branch (N.I.F. W2765338E, Paseo de la Castellana 43, Oficina 05-111, 28046 Madrid, Spain) and PIMCO Europe GmbH French Branch (Company No. 918745621 R.C.S. Paris, 50-52 Boulevard Haussmann, 75009 Paris, France) are authorised and regulated by the German Federal Financial Supervisory Authority (BaFin) (Marie- Curie-Str. 24-28, 60439 Frankfurt am Main) in Germany in accordance with Section 15 of the German Securities Institutions Act (WpIG). The Italian Branch, Irish Branch, UK Branch, Spanish Branch and French Branch are additionally supervised by: (1) Italian Branch: the Commissione Nazionale per le Società e la Borsa (CONSOB) (Giovanni Battista Martini, 3 - 00198 Rome) in accordance with Article 27 of the Italian Consolidated Financial Act; (2) Irish Branch: the Central Bank of Ireland (New Wapping Street, North Wall Quay, Dublin 1 D01 F7X3) in accordance with Regulation 43 of the European Union (Markets in Financial Instruments) Regulations 2017, as amended; (3) UK Branch: the Financial Conduct Authority (FCA) (12 Endeavour Square, London E20 1JN); (4) Spanish Branch: the Comisión Nacional del Mercado de Valores (CNMV) (Edison, 4, 28006 Madrid) in accordance with obligations stipulated in articles 168 and 203 to 224, as well as obligations contained in Tile V, Section I of the Law on the Securities Market (LSM) and in articles 111, 114 and 117 of Royal Decree 217/2008, respectively and (5) French Branch: ACPR/Banque de France (4 Place de Budapest, CS 92459, 75436 Paris Cedex 09) in accordance with Art. 35 of Directive 2014/65/EU on markets in financial instruments and under the surveillance of ACPR and AMF. The services provided by PIMCO Europe GmbH are available only to professional clients as defined in Section 67 para. 2 German Securities Trading Act (WpHG). They are not available to individual investors, who should not rely on this communication. According to Art. 56 of Regulation (EU) 565/2017, an investment company is entitled to assume that professional clients possess the necessary knowledge and experience to understand the risks associated with the relevant investment services or transactions. Since PIMCO Europe GMBH services and products are provided exclusively to professional clients, the appropriateness of such is always affirmed. | PIMCO (Schweiz) GmbH (registered in Switzerland, Company No. CH-020.4.038.582-2, Brandschenkestrasse 41 Zurich 8002, Switzerland). According to the Swiss Collective Investment Schemes Act of 23 June 2006 ("CISA"), an investment company is entitled to assume that professional clients possess the necessary knowledge and experience to understand the risks associated with the relevant investment services or transactions. Since PIMCO (Schweiz) GmbH services and products are provided exclusively to professional clients, the appropriateness of such is always affirmed. The services provided by PIMCO (Schweiz) GmbH are not available to retail investors, who should not rely on this communication but contact their financial adviser. | PIMCO Asia Pte Ltd (8 Marina View, #30-01, Asia Square Tower 1, Singapore 018960, Registration No. 199804652K) is regulated by the Monetary Authority of Singapore as a holder of a capital markets services licence and an exempt financial adviser. The asset management services and investment products are not available to persons where provision of such services and products is unauthorised. | PIMCO Asia Limited (Suite 2201, 22nd Floor, Two International Finance Centre, No. 8 Finance Street, Central, Hong Kong) is licensed by the Securities and Futures Commission for Types 1, 4 and 9 regulated activities under the Securities and Futures Ordinance. PIMCO Asia Limited is registered as a cross-border discretionary investment manager with the Financial Supervisory Commission of Korea (Registration No. 08-02-307). The asset management services and investment products are not available to persons where provision of such services and products is unauthorised. | PIMCO Investment Management (Shanghai) Limited. Office address: Suite 7204, Shanghai Tower, 479 Lujiazui Ring Road, Pudong, Shanghai 200120, China (Unified social credit code: 91310115MA1K41MU72) is registered with Asset Management Association of China as Private Fund Manager (Registration No. P1071502, Type: Other). | PIMCO Australia Pty Ltd ABN 54 084 280 508, AFSL 246862. This publication has been prepared without taking into account the objectives, financial situation or needs of investors. Before making an investment decision, investors should obtain professional advice and consider whether the information contained herein is appropriate having regard to their objectives, financial situation and needs. To the extent it involves Pacific Investment Management Co LLC (PIMCO LLC) providing financial services to wholesale clients, PIMCO LLC is exempt from the requirement to hold an Australian financial services licence in respect of financial services provided to wholesale clients in Australia. PIMCO LLC is regulated by the Securities and Exchange Commission under US laws, which differ from Australian laws. | PIMCO Japan Ltd, Financial Instruments Business Registration Number is Director of Kanto Local Finance Bureau (Financial Instruments Firm) No. 382. PIMCO Japan Ltd is a member of Japan Investment Advisers Association, The Investment Trusts Association, Japan and Type II Financial Instruments Firms Association. All investments contain risk. There is no guarantee that the principal amount of the investment will be preserved, or that a certain return will be realized; the investment could suffer a loss. All profits and losses incur to the investor. The amounts, maximum amounts and calculation methodologies of each type of fee and expense and their total amounts will vary depending on the investment strategy, the status of investment performance, period of management and outstanding balance of assets and thus such fees and expenses cannot be set forth herein. | PIMCO Taiwan Limited is an independently operated and managed company. The reference number of business license of the company approved by the competent authority is (112) Jin Guan Tou Gu Xin Zi No. 015. The registered address of the company is 40F., No.68, Sec. 5, Zhongxiao East Rd., Xinyi District, Taipei City 110, Taiwan (R.O.C.), and the telephone number is +886 2 8729-5500. | PIMCO Canada Corp. (199 Bay Street, Suite 2050, Commerce Court Station, P.O. Box 363, Toronto, ON, M5L 1G2) services and products may only be available in certain provinces or territories of Canada and only through dealers authorized for that purpose. | Note to Readers in Colombia: This document is provided through the representative office of Pacific Investment Management Company LLC located at Carrera 7 No. 71-52 TB Piso 9, Bogota D.C. (Promoción y oferta de los negocios y servicios del mercado de valores por parte de Pacific Investment Management Company LLC, representada en Colombia.). Note to Readers in Brazil: PIMCO Latin America Administradora de Carteiras Ltda.Av. Brg. Faria Lima, 3477 Itaim Bibi, São Paulo - SP 04538-132 Brazil. Note to Readers in Argentina: This document may be provided through the representative office of PIMCO Global Advisors LLC AVENIDA CORRIENTES, 299, Buenos Aires, Argentina. | No part of this publication may be reproduced in any form, or referred to in any other publication, without express written permission. PIMCO is a trademark of Allianz Asset Management of America LLC in the United States and throughout the world. ©2024, PIMCO.
CMR2024-1114-4026054