News in Charts: Explaining US outperformance

The US economy is the largest in the world, when GDP is measured at market prices. It also has among the highest income levels in the world, ranking first among the G7 group of advanced economies for GDP per capita and GDP per employee. It is very difficult to explain the precise reasons for this enduring economic success. However, some of the most common cited factors are: a large and captive domestic audience; entrepreneurial drive; world-leading educational institutions; and deep and liquid financial markets. Fathom research suggests that relatively high levels of R&D play an important role, too.

The US economy looks strong across multiple dimensions. US GDP has topped the global country rankings for more than 100 years, when measured at market exchange rates. Meanwhile, as the chart below shows, GDP per capita has been pulling away from the rest of the G7, with that gap widening notably over the past fifteen years. The US also comes first if GDP is adjusted to reflect the number of employees, rather than people.

Refresh this chart in your browser | Edit the chart in Datastream

The US’s physical characteristics are a boon, too. The mainland spans from the Pacific to the Atlantic, and it enjoys generally friendly relations with its contiguous neighbours. Across this continental landmass, individual states are home to varied specialities, including natural resources. The US is once again a net fuel exporter, aided by the boom in shale exploration, giving it resilience to large spikes in international energy prices. Moreover, with its own domestic supplies of natural gas, it was not negatively impacted by large price spikes following Russia’s invasion of Ukraine. probably explains some of the recent US outperformance. The US normally has lower electricity prices than Europe due to a lower tax wedge. In 2019, for example, German electricity prices were around double those in the US. However, that gap widened in 2022, when wholesale electricity prices in Germany were almost three and a half times higher, and Japanese electricity prices were two times that of the US– and the IEA expects this advantage to persist.[1]

Refresh this chart in your browser | Edit the chart in Datastream

Want more charts and analysis? Access a pre-built library of charts built by Fathom Consulting via Datastream Chartbook in LSEG Workspace.

Fathom Consulting assessed a range of other factors contributing to the US advantage, including but not limited to: management techniques; ICT penetration; education/skills; and concentration ratios. One factor that stood out as being particularly important was R&D intensity, or the share of R&D in GDP. In a world where the returns to knowledge capital do not diminish, a permanent increase in R&D intensity can permanently raise the rate of economic growth. The scatter chart below is evidence in favour of this theory. Those countries that have had the highest R&D intensities over the past couple of decades have also had the highest growth in total factor productivity (and vice versa). The US is a world leader on both metrics. While countries cannot replicate the US’s physical advantages, they can (and should) replicate its success in driving high levels of R&D intensity.

Refresh this chart in your browser | Edit the chart in Datastream

For more information on Fathom’s research into the economics of innovation, including our proprietary indicators, please contact us at enquiries@fathom-consulting.com

The views expressed in this article are the views of the author, not necessarily those of LSEG.

[1] https://www.iea.org/data-and-statistics/charts/quarterly-average-wholesale-prices-for-selected-regions-2019-2024

Join a growing community of asset managers and stay up to date with the latest research from Refinitiv and partners to help you inform your investment decisions. Follow our Asset Management LinkedIn showcase page.