June 6, 2018
The U.S. economy is experiencing one of the longest expansions on record, but the scars left by the Great Recession, as well as challenges posed by globalization and automation shocks, remain visible across the country, according to a new report from the OECD.
The latest Economic Survey of the United States presents a robust near-term outlook: private consumption remains solid, driven by a strong job market and high levels of consumer confidence. Against this backdrop, GDP growth is set to increase by 2.9% in 2018, and 2.8% in 2019. The Survey notes that the recent U.S. tax reform – combined with higher public spending ceilings in 2018 and 2019 – will provide a fiscal stimulus of around 1% of GDP in both years, representing a sizeable short-term boost to growth. Plans to reduce regulatory burdens should also help foster business dynamism.
However, risks to the outlook remain sizable. Elevated leverage ratios in the corporate sector will need careful monitoring, while emerging interest rate differentials between the U.S. and other major currencies may contribute to an appreciation of the dollar. Rising trade tensions with key partners also threaten to disrupt global supply chains and dent growth. And long-term fiscal sustainability remains a concern.
“The U.S. economic recovery and expansion has been remarkable and appears set to continue for the coming two years,” said OECD Secretary-General Angel Gurría, launching the Survey in Washington, D.C., alongside Kevin Hassett, Chairman of the Council of Economic Advisers. “But there are also some serious risks on the horizon, including trade policy, that could threaten much-needed growth, both here in the U.S. and in many other OECD countries. Further policy reforms are needed to sustain the expansion and ensure that all Americans benefit from stronger and more sustainable growth.” Read the full speech.
While material wellbeing is high and Americans appear to be doing well on average in comparison to other OECD countries, job losses have become more persistent in areas hit by structural shocks, especially in the industrial heartland. This has created areas of high unemployment, non-participation in the labor force and poverty.
A worrisome development concerns the declining participation of prime age workers compared to other OECD countries. The participation rate of women has recovered somewhat, but many young men with lower educational attainment remain at the fringes of the labor market. While the tightening labor market and accelerating wage growth foreseen over the next few years will be important in inducing some inactive workers to return to work, the Survey also recommends experimentation with active labor market policies, such as job placement services and supporting geographic mobility.
The increasing rate of automation of tasks with robots and Artificial Intelligence will bring about many benefits, but it will also lead to job losses and wage pressures. They Survey says that mitigating these effects will require stronger policies and early interventions to help workers acquire new skills and take advantage of new opportunities that will be created, before they’re left behind.
The Survey also highlights the substantial and profound economic cost of the opioid epidemic in the United States, where opioid prescription rates per capita are significantly higher than in other OECD countries. Prescription rates vary considerably within the United States, and there is a correlation between areas with higher opioid prescription rates and lower labor market participation. The report recommends new policies for limiting dependence, by adopting best practices in prescribing opioids, removing unused drugs from circulation, expanding the availability of medically-assisted treatments for addiction and ensuring employment and housing to minimize the risk of relapse.