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There are reasons to be optimistic about the US economy

The writer is co-founder of Centerview Partners

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

But while it is clear that we are entering a difficult period, there is also reason to believe that the US economy is ready for a renewed period of expansion in the years to come. Most observers tend to view today’s economic challenges through the prism of past recessions. But the US 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 dealing with change and uncertainty. Think back to March 2020, when the pandemic caused an almost complete shutdown of global trade. Instead of economic Armageddon, we have entered a period of robust growth thanks to the data, tools and strategies now available to business leaders. (Government policy played an essential role in this, of course.)

Executives were quick to review business practices to continue operations. Balances were strengthened, remote working was made possible, new technologies were applied. Capital investments increased in the most agile companies to strengthen their competitive position.

The US labor market is also in better shape today than at the start of previous recessions. The strong employment figures from June underline this. While hiring freezes and layoffs are likely to cause economic pain for many, today employees can find new jobs more easily and quickly thanks to flexible work-from-home options. According to a survey published last year by real estate group CBRE, nearly 90 percent of America’s largest employers plan to continue offering hybrid work policies in the future.

Today’s economy is also more dynamic and entrepreneurial. Yes, technology valuations have fallen because they have been analyzed more rationally. But in the five years ending 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, such as a company’s willingness to continue making strategic capital investments during an economic slowdown. As companies reported their second quarter results this year, many chief executives proactively tightened operating expenses but continued to make high levels of capital investment. Doing otherwise, they know, undermines long-term growth.

Finally, the outlook of the economy is supported by government policies. The bipartisan infrastructure plan will generate more than $100 billion in infrastructure investment in each of the next five years. The landmark Inflation Reduction Act, which was narrowly passed last weekend, will help ease inflationary pressures. The US banking system is stable and healthy. In the wake of ongoing supply shocks, manufacturers are moving to onshore manufacturing and building duplication into supply chains. And while interest rates are rising, they are starting from an all-time low — 0.25 percent, which is 95 percent lower than the average starting rate of the previous four cycles of interest rate hikes by the US Federal Reserve.

Certainly, there are risks, from geopolitical instability to increasing polarization, that can hamper government effectiveness and, in turn, damage corporate 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 think of the nimble private sector, evolved and improved labor markets, and the culture of innovation and entrepreneurship – and the long-term outlook may even look bright.

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