Why the US economy keeps defying the odds

Why the US economy keeps defying the odds 39 minutes ago Share Save Add as preferred on Google Michelle Fleury New York business correspondent Getty Images In Dresden, in east Germany late last year, the final car rolled off the assembly line at Volkswagen's "Transparent Factory", built to showcase the pinnacle of European industrial power. Thousands of miles away in Spartanburg, South Carolina, a different German giant, BMW, is running its biggest plant in the world. The contrast between the two plants helps explain a puzzle economists have been debating for a while: why has the American economy continued to outperform so many of its peers, despite facing the same global shocks? Over the past few years, much of the developed world has buckled under a succession of shocks. Trump's sweeping tariffs have disrupted global trade. Mass deportations are changing labour markets. And conflict in the Middle East has sent oil prices lurching. Many economists expected those pressures to weigh heavily on the US. Instead, the economy has continued to grow at a steady pace. Inflation has proved stubborn at times, but the combination of weak growth and persistently rising prices that many feared hasn't happened. Joe Brusuelas, chief economist at RSM, argues the trade war itself became the strongest proof of American resilience. "The own goals that the Trump administration has imposed on the US with respect to trade and immigration are probably the single best example of the underlying dynamism of the American economy," he says. Faced with a sudden tax on foreign components, US corporations didn't accept lower margins, they invested harder. "CapEx (capital expenditure) right now is 13.9% of US GDP," says Brusuelas. "That should be slowing, given the mix of supply and demand shocks the economy is absorbing, and it's not." Instead, much of that pressure has been offset by a notable rise in productivity. The broader US economy has continued to expand at an annualised rate of around 2%. Energy markets offer another explanation. The war in the Middle East has pushed oil prices higher, a development that historically would have posed a major threat to US growth. But the shale revolution fundamentally altered America's exposure to energy shocks. Over the past two decades, the US has become one of the world's largest oil and gas producers, while businesses have steadily reduced their reliance on petroleum. "The development since the early 2000s of fracking in the United States, alongside the evolution of alternative fuels, has created the conditions where oil's contribution to GDP per unit has fallen by half over the past 50 years," says Brusuelas. Trump: "I love the inflation" The difference with Europe is clear. While the US has focused on flexibility, embracing fracking and letting prices respond to the market, Europe has relied on long-term contracts and interconnected supply networks to guarantee energy security. That approach left many countries exposed when Russi