The US economy is currently on track to surpass previous growth expectations, as demonstrated by the latest job numbers published on Good Friday, which gave account of 916,000 new jobs created in the country during the month of March, largely exceeding the consensus forecast of 647,000. At the same time, other economic indicators point at an accelerating expansion in the services and industrial sectors. Such robust numbers forced analysts to recalibrate their expectations, with the American GDP now expected to be back on track by 2024; meaning that by then the output of the country will match what the 2019 forecasts expected it to be.
If these projections are correct, the pace of the expansion will be truly remarkable, resulting from a perfect cocktail of high savings accumulated by consumers stuck at home during the lockdowns, governmental stimulus (including direct cash payments to most Americans) and the euphoria that is expected in the aftermath of the crisis (comparisons have been made with the extravaganza that took hold during the 1920’s, following the hardships of WW1).
Speaking to journalists recently, Jamie Dimon, the CEO of JP Morgan, referred to the possibility of a Goldilocks moment, with fast growth, gently rising inflation and modest hikes in interest rates. Mr Dimon stated that such conditions could be the background to a period of sustained spending leading to several years of economic expansion.
The amount of excess savings accumulated by private citizens during the pandemic is estimated to be in the region of $2 trillion, while large corporations amassed $3 trillion of reserves in their balance sheets. Add to this the $1.9 trillion stimulus package recently approved by US senate, the Fed’s gargantuan $120 billion a month quantitative easing and the planned $2 trillion governmental spending on infrastructure; the numbers become truly staggering, opening-up the possibility of a new golden age for the American economy which will end up carrying the rest of the world with it – there is an old saying: when the United States sneezes the rest of the world catches a cold, if so, then the opposite must also be true. At least this is what we all hope for.
It is of course true that events may still follow a different course: An overheated economy may trigger the return of high inflation, something we haven’t seen in the West since the 1970’s and which would definitely throw a massive spanner into the works of economic recovery. It is also possible that more lockdowns will be required, postponing the timings of growth and diluting the effect of the stimulus measures being applied.
In any case, it appears that at least for now the base case remains optimistic. Stock markets, where traders always strive to price-in future scenarios, are rampant, with the S&P500 reaching fresh maximums on an almost daily basis. Should the most optimistic expectations materialise, we may be about to enter a new era of growth and prosperity; what a difference to the gloominess of a year ago!
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