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FT editor Roula Khalaf has chosen her favorite stories in this weekly newsletter.
The author is a co-founder of Centerview Partners
Since the first interest rate hike in March 2022, the debate about the U.S. economy has centered on two questions. First, will the Fed be able to pull off its vaunted soft landing? Second, if we face a recession, will it be deep and permanent, or shallow and temporary?
It is time to replace the soft landing metaphor with a new term: economic acceleration.. To be sure, our economy faces undeniable headwinds in the short term, from a volatile commercial real estate sector to rising gas prices. However, there is reason to believe that the U.S. economy is poised for strong, sustained growth over the long term.
Based on conversations I have regularly with business leaders from a variety of sectors, most economic forecasts have the potential to boost gross domestic product (GDP) growth by 0.25 to 0.50 percentage points over the long term for our nation's economy. I think it doesn't take into account the innovation of
There are many reasons to be optimistic, but six factors in particular are driving this change. First, despite persistent market pessimism, companies are performing well. The challenges of the pandemic built resilience, and CEOs became adept at managing through inflation, deploying technology to improve productivity, and allocating capital to achieve long-term goals. The CEO confidence index reached its highest level in more than a year in June.
The second driver of potential economic acceleration is workforce dynamics that benefit both businesses and workers. In the post-pandemic era, a tightening labor market has led to higher wages and more job opportunities, further empowering workers. At the same time, companies value employee continuity and place greater emphasis on stable and trained employees.
Information technology is also helping companies increase profit margins and manage volatility, which in turn helps reduce cost pressures. Now, companies like Walmart and Target can change inventory selections in real time based on demand. Purchase orders that once took days or weeks now take just minutes. As a result, businesses can better manage spending, inventory, and risk. All of this benefits workers, as it reduces the need for large-scale layoffs.
The fourth factor is the continued strength of consumer spending. Since 2019, market forces and smart policy decisions have supported and empowered consumers. Pandemic-era government aid helped support Americans' economic health. Real wages increased from 2019 to 2022, with the strongest growth at the bottom of the wage distribution. Wage growth has been consistent and outpaced inflation. Household cash balances are still increasing, and spending continues to increase despite rising prices.
The fifth factor is the role of innovation-driven mergers and acquisitions in achieving long-term growth. Historically, the objective of M&A has been to rationalize volume, new products and markets, and of course costs. More recently, the strategic rationale has shifted to strengthening a company's innovation engine. The focus is on targeted marketing, strengthening supply chains, new product distribution routes, and improving manufacturing locations. For example, various retail companies have acquired distribution technology and advanced same-day delivery technology.
And we should not underestimate the growth that comes from our government's strategic and broad-based investments in the U.S. economy. Most of the nearly $3 trillion in federal funds earmarked for productive investments over the past four years remains unspent. In parallel with this public investment, the private sector is also becoming more active, with expectations for stronger public-private partnerships. In Ohio, for example, Intel is investing up to $100 billion in building a new semiconductor manufacturing site, thanks to federal tax credits meant to incentivize such projects.
Policymakers and business leaders remain concerned, and the country has yet to fully address inflation and address many of its policy challenges. There are short-term risks that can result in volatility. However, some signs point to strong and sustained growth in the coming years, a change that should please investors and validate recent economic policy choices. It's time to abandon questions about how deep the recession will be and instead talk about how long the next growth cycle will last.
