The author is a co-founder of Centerview Partners
The US economy is slowing down. The main argument among economists is whether we are in for a soft or a hard landing, and the bearish perspective has dominated the headlines.
But while it is clear that difficult times lie ahead, there is also reason to believe that the US economy is poised for renewed expansion in the years to come. Most observers tend to view today’s economic challenges through the prism of past downturns. But the US economy works differently today than it did 40 or even 14 years ago.
First of all, the private sector has become more innovative, flexible and proactive when it comes to managing change and uncertainty. Think back to March 2020, when the pandemic brought global trade to a near-total standstill. Instead of economic Armageddon, we have embarked on a period of robust growth, thanks to the data, tools and strategies now available to business leaders. (Government policy played a significant role here, of course.)
Executives quickly revised business practices to continue operations. Balance sheets have been strengthened, remote work has been made possible, new technologies have been introduced. The most agile companies increased capital investment to strengthen their competitive positions.
The US labor market is also in better shape today than it was at the start of past downturns. The strong employment numbers in June underscore this. While hiring freezes and layoffs are likely to cause economic hardship for many, flexible home working options are making it easier and faster for workers to find new employment opportunities today. According to a study published last year by the real estate group CBRE, almost 90 percent of the largest American employers plan to continue to offer hybrid working policies in the future.
Today’s economy is also more dynamic and entrepreneurial. Yes, technology ratings have gone down as they have been analyzed more rationally. But in the five years to 2021, business start-ups were a third higher than in the previous five-year period.
And we’ve learned in the decade or so since the post-financial crisis recession that economic models don’t capture intangibles like a company’s willingness to continue strategic capital investments during an economic slowdown. As companies reported second-quarter earnings this year, many CEOs decided to proactively tighten their operating expenses, but continued to invest heavily in capital. They know that otherwise longer-term growth will be undermined.
Finally, the outlook for the economy is buoyed by government policies. The bipartisan infrastructure plan will provide more than $100 billion in infrastructure investment each of the next five years. The landmark anti-inflation bill narrowly passed last weekend will help ease inflationary pressures. The US banking system is stable and solid. As supply shocks continue, manufacturers are shifting to onshore production and building duplicates into supply chains. And while interest rates are rising, they’re starting from a historically low level — 0.25 percent, which is 95 percent lower than the average starting rate of the Federal Reserve’s previous four rate-hike cycles.
Of course, there are risks, from geopolitical instability to increasing polarization, that could hamper government effectiveness and, in turn, hurt business confidence. But the US is better positioned for growth than the current economic debate is admitting. Look beyond the immediate economic clouds on the horizon – and think of the agile private sector, the developed and improved labor markets and the culture of innovation and entrepreneurship – and the long-term forecasts might even look sunny.
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