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A prosperous nation is underpinned by an inclusive society, with a strong social contract that protects the fundamental liberties and security of every individual. Prosperity is built by empowered people, who create a society that promotes well-being. Finally, prosperity is driven by an open economy that harnesses ideas and talent to create sustainable pathways out of poverty. While the American Dream Prosperity Index reveals that U.S. prosperity has been steadily rising over the past decade, apart from during the 2020 pandemic, how might the current economic climate impact future prosperity?
U.S. inflation is running at a 40-year high, despite it decreasing from a peak of 9.1% in June 2022 to 7.7% in September 2022. The U.S. economy also faltered during the first half of 2022 with two quarters of small negative growth. More recently, however, things are looking a little brighter as the U.S. economy had a more optimistic third quarter, growing by 2.7% on the previous quarter.
As a result of the COVID-19 pandemic and the actions taken to contain it, U.S. prosperity weakened between 2020 and 2021. While the full impacts of the pandemic will take many years to be realized, prosperity rebounded in 2022 with 26 states recovering to pre-pandemic levels of prosperity. Economic factors such as increasing entrepreneurship and new businesses played a key role in the post-pandemic rebound. In Oklahoma, for example, the rate of new entrepreneurs rose from 393 to 435 per 100,000 population, together with an increase in available finance to support such businesses, contributed to Oklahoma’s resurgence in prosperity.
As shown in the chart, new business activity, which kick-started in the second half of 2020, has continued apace into 2022, with over 400,000 new business applications every month since June 2020, a third higher than prior to the pandemic. This is contributing to the considerable number of job vacancies that currently exist, which has stood at over 10 million since June 2021. This points to a dynamic economy, which is a key component to building prosperity. The unemployment rate has also been falling since the pandemic and has stood at less than 4% during 2022. Of potential concern, is the labor force participation rate, which is 1.5% points lower than it was prior to the pandemic. There are therefore fewer people in the job market to take these jobs, and employers are reporting that filling some vacancies is proving problematic. To further try and improve U.S. economic competitiveness, innovation, and industrial productivity, and thus stimulate greater growth, the U.S. Government introduced the Inflation Reduction Act in August 2022, which is the third piece of legislation passed since late 2021 that seeks to incentivize the U.S. economic growth, which together introduces $2 trillion in new federal spending over the next ten years.
These additional stimulus packages, coupled with economic growth of nearly 3% in the latest quarter, increased business start-ups, and low unemployment all suggest that the U.S. is positioned well to create a stronger Open Economy. As cited earlier, however, prosperity is also underpinned by an Inclusive Society. Rising gun crime and the decline in social capital are therefore holding the U.S. back from achieving even greater prosperity. Consequently, the U.S. ranks 69/167 nations on Safety and Security, 11 places lower than a decade previously. Prosperity is also built by Empowered People, so the deterioration in Mental Health across many parts of America, is concerning and is also acting as a brake on greater progress. As a result, the U.S. ranks 68/167 nations on the Health pillar, down from 56th in 2012. In upcoming Insights, we will be exploring in more detail these important components of prosperity and what is causing their deterioration across America and whether all places are being impacted equally.