Gazing out over the next few decades, I see at least three major challenges confronting the U.S. economy.
First, we have to overcome the consequences of the lingering effects of the pandemic, including getting inflation under control, dealing with the inevitable fallout that effort will involve, and working through ongoing supply chain disruptions. Second, we must confront the chronic worker shortages. Third, we need to fashion a realistic energy policy, which both meets climate goals and provides for future essential resources (more on that another time).
The pandemic’s disruptions understandably wreaked havoc across a broad spectrum. A federal funds rate of 0% and aggressive quantitative easing helped to avoid a catastrophic downturn, but now must be (somewhat painfully) unwound. Federal stimulus packages flooded households with cash which increased demand even as disruptions curtailed supply, contributing to price escalation. Combined with the war in Ukraine, shutdowns in China, weather disruptions, and tight labor markets, and you have the makings of stubborn inflation.
Unlike the late 1970s and early 1980s, the factors driving this phenomenon are not structural in nature and not permanently baked into the system. Pressures are not rapidly dissipating, though prices for many things are stabilizing and some (including housing) are beginning to notably decline. If we avoid turning inflation into a self-fulfilling prophesy, it bodes well for long-term growth and stability.
Labor shortages have been somewhat affected by the pandemic, but they are primarily a reflection of persistent demographic patterns as we transition away from the boomers. Dealing with them will require a variety of actions, including, at a minimum, attracting people now on the sidelines back into the workforce, investing in automation and machine learning, and crafting reasonable immigration policy. The effectiveness with which these issues are dealt with affects the rate of long-term economic growth.
The U.S. economy is currently facing notable challenges, but I think we’ll see things improve once we get through the immediate hurdles. There are many underlying features of the U.S. economy that bode well for expansion and sustainability. Our most recent long-term projections indicate that, over the 2021 to 2050 period, real gross product is expected to increase from an estimated $19.5 trillion to $41.4 trillion, a 2.64% compound annual rate of growth. Employment is forecast to rise by 1.58% per year on average over this time horizon, leading to the creation of 84.3 million net new jobs and total wage and salary employment of 230.4 million by 2050.
A slowdown in the pace of growth over the next year or so seems unavoidable at this point and uncertainty abounds on many fronts, but the long-term outlook for the national economy remains decidedly positive. Stay safe.