Why the US Economy Has Remained Stronger Than Expected
NEW HAVEN – Despite dire predictions, major indicators for the US economy still seem robust. Although the recent government shutdown has delayed the release of third-quarter data, growth in the second quarter of 2025, at an annualized rate of 3.8%, was higher than expected, inflation seems under control – higher tariffs notwithstanding – and the stock market has been soaring.
To be sure, some might counter that aggregate growth is an imperfect measure of well-being; that inflation remains above the Federal Reserve’s 2% target; that the stock market gains may reflect a bubble that could burst at any time; and that such statistics do not capture the suffering of those directly affected by spending cuts or the government shutdown (from federal employees to food-stamp recipients). But even critics of the current administration would have to admit that the data have been stronger than they expected.
What do these data say about the wisdom of economists who predicted gloom and doom? To answer that, it might be useful to draw a parallel to medical doctors. Suppose a physician tells a patient with clogged arteries that she is at risk of a heart attack or stroke unless she takes preventive measures. Now suppose that patient remains healthy over the next year or two. Does this mean the doctor was wrong?
Obviously not. Perhaps the patient changed her lifestyle by eating healthier food, exercising, or taking a medication. In this case, the doctor’s prognosis did exactly what it was supposed to do: it caused the patient to take the right actions. Or perhaps the patient just got lucky in the short run, in which case the doctor’s prognosis could well be true in another year or two, absent a change in behavior.
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