Do Not Bet Against the U.S. Economy

by | May 4, 2022

America has a strong economy:  Prior to the pandemic, people wondered if the economy was too hot and on the brink of a recession. 

Were we seeing any excesses? In a funny way, the pandemic reset the business cycle clock, putting us back to an early stage of growth. If there were any excesses in January 2020, the shutdown knocked them down. Weak retailers that were already declining suffered accelerated exits. Today, we do not have excesses but shortages, mainly labor and production. 

However, there is no shortage of demand, so the pain we are seeing is not due to a weak economy but a strong one that is temporarily imbalanced due to supply chain inefficiencies and “missing” or rebuilding businesses.  

Do not bet against the U.S. economy:  The most significant lesson of the last two years is…. Do not bet against the U.S. economy. We saw the power and resiliency of the U.S. economy in the face of unbelievably adverse conditions. Think about it. We literally – not figuratively – shut down almost 40% of the economy for about three and a half months.

On top of that, we had a virus about which we knew virtually nothing. In response, the U.S. came up with not one but three high efficacy vaccines, including mass production and widespread distribution. The only people who are not vaccinated at this point do not want it. And on top of death and disruption from this pandemic, we had an election year with unsettling divisiveness, social unrest, and sharply rising crime. Yet, there is ample evidence of a thriving economy: through 2021, real GDP is 3.2% above where it was in 2019; most of us are wealthier; most of us have more savings; holiday sales were strong; we are at record high job openings, and almost anybody who wants a job has a job in America today.

AND YET the U.S. economy continues to grow:  Every year over the last four decades, you could have made a list of 7 or 8 extremely difficult things facing the U.S. economy. And it’s not that this list isn’t accurate and that these problems aren’t serious. And yet the U.S. economy still carries forward and grows. The economy could go down for one quarter, two, maybe three, but it always prevails. Real GDP is 3.5% higher than it was in February 2020. Despite all that has happened over the last two years, employment is down only 1%, industrial output is down only 1%, asset values are high, consumer balance sheets are in good shape, and business is up. And yet the U.S. economy continues to grow.”

**This excerpt is taken from the Linneman article and interview with Dr. Peter Linneman.  The Linneman Letter Volume 22, Issue 1 Spring 2022.