Bank of America Sees US Economy Strengthened by Productivity Growth
The U.S. economy is showing signs of structural resilience, according to Bank of America (BofA), primarily driven by sustained labor productivity growth. This growth trajectory is attributed to increased business formation, deregulation, and capital deepening across various sectors.
Since 2019, there has been a significant increase in business applications, rising by 37%. This surge has managed to reverse a longstanding “startup deficit” that had previously posed a challenge to productivity enhancement. Deregulation, notably within the financial sector, has also emerged as a positive influence on this growth. Meanwhile, the aging capital stock within the United States is undergoing a significant transformation. Investments are expanding beyond the technology sector into areas such as infrastructure, reshoring, and data centers. This broader pattern of capital expenditure is anticipated to strengthen the country’s long-term economic capacity.
Artificial intelligence (AI), often considered a disruptive force, is treated with cautious optimism by BofA regarding its immediate economic impact. The bank remains cautious due to a lack of substantial monetization evidence. Nonetheless, it acknowledges that AI has the potential to present an upside risk to future productivity and growth.
Looking historically, productivity cycles have been linked with stronger equity market returns, elevated rates, and robust economic growth. The rising hurdle rates are expected to phase out inefficient “zombie” companies, which have been a drag on productivity. The current economic environment draws parallels to the 1980s and 1990s, a period characterized by efficiency gains and higher real interest rates.
With the acceleration of productivity growth, BofA predicts that the U.S. GDP could rise to the 2.0-2.5% range, surpassing most existing estimates. Should this trend continue, it could fuel ongoing economic progression and stronger stock market performance.
