The US Economy on a Roll: Expectations for Continued Growth in the Roaring 2020s
As Taylor Swift’s "The Eras Tour" came to an end, I embarked on my own journey, titled "The Roaring 2020s Tour," in California at the beginning of January 2024. Since then, I’ve been traveling across the country, reflecting on the remarkable resilience of the US economy over the past three years. Despite the monetary policy tightening, which was expected to precipitate a recession, our nation’s GDP has continued to grow impressively.
The Resilient Economy
One of the primary themes of my tour is the incredible strength displayed by the US economy in recent years. Since Q2 2020, when the economy bottomed out during the previous recession, real GDP has increased by an impressive 23.5%. This growth is all the more remarkable given that this was a recovery period that lasted only 20 months, making it one of the shortest on record.
As we analyze our Roaring 2020s scenario, we expect the current economic expansion, which began in Q3-2020, to continue for an extended period. Perhaps the US economy won’t experience a recession at all this decade; we may enter the Roaring 2030s as well. Our research suggests that the ongoing post-recovery expansion could potentially last even longer than the notable 105-month expansion of the 1990s.
The resilience of the US economy, despite challenging government policies and regulations, is certainly noteworthy. It’s a testament to the hard work of American workers and the innovative business acumen of American companies’ management teams. Together, they have managed to drive real GDP to new record highs for decades, regardless of any setbacks caused by governmental interventions.
The Impact of Washington
It might be tempting to attribute this economic performance primarily to the actions or lack thereof of Washington policymakers. However, we firmly believe that the work ethic of American workers and the entrepreneurial spirit of American companies play a much more significant role in driving real GDP growth. The success of these companies has been enabled by an ever-growing economy with diverse sources of income, which is not dependent on government incentives or tax policies.
For instance, since the pandemic, there have been consistently over 5 million new business applications every year according to US Census Bureau statistics. This speaks volumes about Americans’ affinity for entrepreneurial capitalism and their ability to create new technologies and businesses that boost both employment and capital spending in the country.
The number of sole proprietorships reached an impressive 29 million by 2021, with proprietors contributing a record-breaking $2 trillion (saar) to personal income. Rental income also increased significantly, reaching $1.1 trillion during December. These non-labor sources of income account for almost 28% of personal income in the United States.
This increasing diversity of household income explains why consumer spending has become more resilient lately. Even when faced with monetary policy tightening, consumers collectively have multiple cushions to protect their purchasing power and maintain confidence in the US economy’s ability to grow and create wealth for decades to come.
Diversified Capital Markets
Another significant factor contributing to the robustness of our Roaring 2020s scenario is the resilience of America’s capital markets. In contrast to previous periods, when such crises were frequent and often accompanied by financial calamities, today’s market participants are more sophisticated, diversified, and prepared for emergencies.
Since the Great Financial Crisis of 2008, the Federal Reserve has become decidedly better equipped at establishing emergency liquidity facilities promptly in response to potential financial shocks. These actions have been critical in preventing a systemic economic recession in the face of banking crises or other challenges.
When California faced a banking crisis last March, policymakers swiftly contained its impact. Similar quick interventions can prevent future panics from spreading and becoming economy-wide credit restrictions leading eventually to recessions.
In addition to an increased government ability to address issues promptly, private market instruments have also been developed for the more efficient resolution of problems related to loans without these troubles translating into a larger societal economic downturn. This is not merely anecdotal; it’s rather a systematic shift seen across America’s financial markets following the lessons learned from prior disasters.
Digital Transformation and Productivity
As we look deeper into specific areas, such as technology and productivity, we observe an extraordinary growth in the ability of companies to leverage advanced technologies and software. Since the 1950s, the "Digital Revolution" has been gradually transforming the US economy by increasing processing capacity at decreasing costs for a wide range of applications.
The impact is undeniable, with real-time data and large language models providing tools that can extract knowledge from an overwhelming amount of information at ever lower pricing and processing speeds unmatched before this period in time.
Our scenario sees significant potential in leveraging AI to improve the productivity and efficiency across industries. As such apps proliferate – many built using coding software generated by artificial intelligence itself – they contribute significantly towards the robustness of our Roaring 2020s hypothesis.
Nominal business capital spending has been shifting heavily from other sectors to high-tech, representing nearly half of total outlays by this time in the decade compared with the roughly 20% it was in the 1960s. Clearly, an expansion on consumer-facing technology as well plays a significant role but remains harder to quantify.
Resilient Consumer
Our last area for analysis shows how consumers’ diverse sources of income have made their spending resilient during these years despite higher interest rates expectedly dampening purchasing power.
According to US Census data from 2024, personal interest income soared to a record $2 trillion. While this is accompanied by a notable surge in the volume that families spend on servicing personal debt which we’d never expect should rise nearly as far, consumers’ diversified portfolios help explain these contrasting trends.