America’s Goldilocks economy

When Goldilocks broke into the three bears’ house and stole their breakfast, she found Baby Bear’s porridge to be just right — neither too hot nor too cold. The same is true of today’s ‘Goldilocks’ American economy: it is growing neither too fast nor too slowly but just right, to the great surprise of its many critics.

In fact, America’s resilience in the face of intense economic headwinds has been one of the great surprises of the past 18 months. Wall Street pundits were convinced the US economy would grind to a halt in the second half of last year, and would by now be mired in rising unemployment, low growth and rising inflation. This would have been a disaster for the British economy too, since we are linked more than ever to US markets.

Not only has there been no American recession, but a soft landing has turned into accelerating growth. The US economy powered ahead by 3.4 per cent in 2006, better even than the previous year, shrugging off falling house prices.

The bears were proved right in only one area: the number of new housing starts by construction companies collapsed by 38 per cent year on year in January, a decline which would have tipped a lesser economy into recession. Another traditional part of the US economy in deep crisis is the motor industry in Detroit, which faces relentless competition from Japanese carmakers.

To the great Goldilocks economy, however, none of this seems to matter. Other, more dynamic sectors, including technology and education, are taking up the slack. No fewer than 7.4 million additional jobs have been created since mid-2003 in America, a creditable performance given unprecedented levels of globalisation and international competition.