This Survey is published on the responsibility of the Economic and Development Review Committee of the OECD, which is charged with the examination of the economic situation of member countries.

The United States economic recovery was more rapid than in most OECD countries. Unprecedented policy support combined with an early vaccination rollout allowed real GDP to recover its pre-pandemic level by mid-2021 (Figure 1). The employment recovery was stronger than those following other recent recessionary periods, but the mismatch between labour supply and demand has become pronounced. Inflation has escalated rapidly and economic activity is now slowing.

The United States, along with other OECD countries, is facing considerable uncertainty at present. Just when some of the supply-chain challenges triggered by the pandemic had started to fade, Russia’s war against Ukraine has inflicted a new negative supply shock on the global economy. Although direct trade and financial linkages of the United States with Russia and Ukraine are limited, there are impacts on global markets that are having considerable flow on effects for domestic inflation and output.

The United States economy rebounded strongly from the depths of the pandemic recession, aided by a large and enduring government policy response. However, Russia’s war against Ukraine and strong inflationary pressures have dampened the economic outlook. The administration is reinforcing public welfare through packages that invest in infrastructure and the climate transition, but an ageing population means fiscal pressures are on the horizon. In response, further efforts should focus on both broadening the tax base and improving public spending efficiency. For instance, stronger governance of infrastructure projects at the federal level would ensure that new spending has the highest societal return. Establishing a federal institution to provide ongoing cross-state and cross-sectoral advisory about infrastructure priorities and best practices would be beneficial in this regard. There is also substantial scope for improving health spending efficiency, including through further efforts to reduce the very high cost of pharmaceuticals and reforms that promote greater competition between health providers.

The American middle class has shrunk in size since 1970 according to most definitions. This “hollowing” out of the United States income distribution could result in disillusionment, diminished political engagement, and declining trust in institutions. The American middle class faces two major challenges, among others. First, child care costs in the United States are high and availability is low. Improving enrolment in child care has the potential to reverse the fall in female labour market participation since the financial crisis and result in improved well-being and economic growth. Public funding for child care programmes should be raised, and programme eligibility should be widened to benefit middle-income parents. Second, the climate transition will entail major changes to middle-class lifestyles. Reductions in US household emissions from housing and transportation will be key to achieving the overall emission reduction targets, and may prove costly. Workers in carbon-intensive sectors of the economy and households living in regions that rely on carbon-intensive activities will be affected as resources shift to greener sectors. A national climate strategy should be developed that explicitly takes into account emissions inequalities and the redistributive effects of climate policies. Active labour market policies will be key to achieving a just transition, and existing home weatherisation programmes should be expanded to cover the middle-class.