There are reasons to be optimistic about the US economy

The writer is a co-founder of Centerview Partners

The US economy is slowing down. The main dispute among economists is whether we are in for a soft or hard landing, and the pessimistic outlook has dominated the headlines.

But while it is clear that we are facing a difficult period, there are also reasons to believe that the US economy is poised for a renewed period of expansion in the coming years. Most observers tend to view current economic challenges through the lens of previous downturns. But the American economy works differently today than it did 40, or even 14 years ago.

For starters, the private sector has become more innovative, agile and proactive in managing change and uncertainty. Consider March 2020, when the pandemic caused an almost complete shutdown of global trade. Thanks to the data, tools and strategies now available to business leaders, instead of economic Armageddon we embarked on a period of robust growth. (Government policy, of course, played an essential role here.)

Executives quickly reviewed business practices to continue operations. Balance sheets were strengthened, remote work was enabled, new technologies were adopted. In the most agile companies, capital investment increased to enhance competitive positioning.

The US labor market is also in better shape today than at the start of previous downturns. The good employment figures for June underline this. While hiring freezes and layoffs are likely to cause financial pain for many, workers today can find new job opportunities more easily and quickly thanks to flexible work-from-home options. According to a study by real estate group CBRE released last year, nearly 90% of the largest employers in the United States plan to continue offering hybrid work policies in the future.

Today’s economy is also more dynamic and entrepreneurial. Yes, technology valuations have come down as they have been analyzed more rationally. But in the five years ending in 2021, new business creation was a third higher than in the previous five-year period.

And we’ve learned in the decade or so since the recession that followed the financial crisis that economic models don’t capture intangibles like a company’s willingness to continue strategic capital investments through an economic slowdown. As companies reported earnings for the second quarter of this year, many CEOs adopted a proactive tightening of operating expenses, but continued high levels of capital investment. Doing otherwise, they know, undermines long-term growth.

Finally, the outlook for the economy is driven by government policy. The bipartisan infrastructure plan will provide more than $100 billion in infrastructure investment in each of the next five years. The historic Inflation Reduction Act, narrowly passed last weekend, will help ease inflationary pressure. The US banking system is stable and sound. In the wake of continued supply shocks, manufacturers are moving to onshore production and building duplication into supply chains. And while interest rates are rising, they are starting at a historically low level of 0.25 percent, which is 95 percent lower than the average starting rate of the previous four cycles of rate hikes for part of the US Federal Reserve.

There are certainly risks, from geopolitical instability to increased polarization, that could impede government effectiveness and, in turn, damage business confidence. But the US is better positioned for growth than the current economic debate admits. Look beyond the immediate economic clouds on the horizon, and consider the nimble private sector, evolved and improved labor markets, and culture of innovation and entrepreneurship, and the long-term forecast may even look sunny.

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