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The writer is co-founder of Centerview Partners
Since the first interest rate increase in March 2022, discussions about the US economy have centered on two questions. First, can the Federal Reserve pull off the much-vaunted soft landing? Second, if we do face a downturn, will it be deep and enduring or shallow and transient?
Time to trade the term “soft landing” for a new metaphor: economic acceleration. While there are undeniable near-term headwinds like a shaky commercial real estate sector and rising gasoline prices, there are reasons to believe that the US economy is poised for robust and sustainable long-term growth.
Based on my frequent conversations with business leaders across sectors, I believe most economic forecasts have overlooked innovations in our economy that could contribute 0.25 to 0.50 percentage points to GDP growth in the long run.
Among the many reasons for optimism, there are six key factors driving this shift. Firstly, despite some market pessimism, corporations are performing well. The challenges of the pandemic have built resilience, and CEOs have become skilled at managing inflation, adopting technology for productivity improvements, and investing capital for long-term goals. In June, the CEO Confidence Index reached its highest level in over a year.
The second factor driving potential economic acceleration is the dynamics of the labor force, benefitting both companies and workers. In the post-pandemic era, workers have gained more power, resulting in higher wages and more job opportunities. At the same time, companies are focused on workforce continuity and value a stable and trained workforce.
Information technology has also helped companies improve profit margins and navigate volatility, reducing cost pressures. Companies like Walmart and Target can now adjust inventory selection in real-time based on demand. Orders that used to take days or weeks can now be completed in minutes, allowing better spending, inventory, and risk management. This benefits labor by minimizing the need for significant layoffs.
The fourth factor is sustained strength in consumer spending. Forces in the market and smart policy decisions have supported and empowered consumers since 2019. Government aid during the pandemic bolstered Americans’ economic well-being. Real wages increased between 2019 and 2022, with the strongest growth at the lower end of the wage scale. The wage growth has remained consistent and outpaced inflation, while households maintain elevated cash balances, supporting continued spending growth despite higher prices.
The fifth factor is the role of innovation-driven mergers and acquisitions in achieving long-term growth. While historically focused on volume, new products, markets, and cost rationalization, M&A now emphasizes strengthening a company’s innovation engine. This includes targeted marketing, supply chain enhancements, new product distribution routes, and improved manufacturing processes. Retail companies, for example, have acquired distribution and same-day delivery technology.
We should also consider the growth potential from strategic government investments in the US economy. The majority of the nearly $3tn in federal funding for productive investment passed in the last four years has yet to be spent. This public investment is complemented by a private sector eager for increased public-private partnerships. In Ohio, Intel is investing up to $100bn in a new semiconductor manufacturing hub, thanks in part to federal tax credits that incentivize such projects.
Policymakers and business leaders still have concerns, and the country has not fully addressed inflation or policy challenges. There are short-term risks that may bring volatility. However, several indicators point to strong and sustained growth in the coming years. It is time to shift focus from recession fears and instead discuss the duration of the upcoming growth cycle.
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