The American economy is on the cusp of growth not seen in decades, but the sustainability of that growth will depend on decisions made today concerning taxes, spending and infrastructure, said Joseph Brusuelas, chief economist of RSM US, and Neil Bradley, chief policy officer of the U.S. Chamber of Commerce.
The comments, made on this webcast sponsored by RSM and the Chamber, were part of a wide-ranging discussion on the economy as it emerges from the pandemic.
Brusuelas and Bradley said that policymakers and businesses faced a host of challenges in a year of whipsaw change that made planning ahead, let alone surviving to the next month, difficult. But that uncertainty is giving way to a period of robust growth—which in itself is posing its own set of challenges.
“Welcome to the boomtown,” Brusuelas said as he kicked off the conversation. He said that his forecast called for gross domestic product to grow by 10% for the second quarter and by 7.5% for the year—a pace that was hard to imagine a year ago in the depths of the pandemic.
That confidence is showing up in the middle market. A recent survey of senior executives in the proprietary RSM US Middle Market Business Index found that a majority were making productivity-enhancing investments in capital expenditures, Brusuelas said.
Finding workers
Bradley echoed that confidence, and said that growth was so strong that many businesses were reporting difficulty finding workers. He acknowledged that the shortage is a significant challenge, “but it’s not a new one.”
The labor shortage, he said, is the result of longer-term changes in demographics as the population ages, declining immigration and a mismatch of skills in certain industries as the economy transforms to one based on digital technologies. The pandemic only exacerbated these trends, he said.
But it’s a happy problem, of sorts—a reflection of confidence among executives and their bullish outlook on the economy.
And if this bullishness is to last, Bradley noted, policymakers and lawmakers need to make smart long-term decisions.
Fixing the infrastructure
One of these areas concerns infrastructure and the Biden administration’s proposal to shore up and modernize the nation’s systems.
While few dispute the need to rebuild America’s aging infrastructure, an agreement on just how that should be done has proved elusive.
Brusuelas cited the theory of I2R—or Big I, Little I and resiliency. It emphasizes a rebuilding of the big things that people often associate with infrastructure—the Big I—like roads and bridges; an updating of the systems that form the backbone of the digital economy—Little I—like broadband and 5G; and, finally, a bolstering of resiliency so that catastrophes like the Texas power outage last winter don’t happen again.
Brusuelas cited recent data from the MMBI survey, to be published in July, that showed a new sense of urgency among middle market businesses for an infrastructure package. Strong majorities of the executives said that substandard infrastructure was hurting not only the national and local economies, but also their own organizations, the survey found.
Maintaining focus
Bradley went further and said that Congress needed to be careful to keep the focus of the infrastructure package on initiatives that will help businesses, and the economy, grow.
“Politicians love to stretch the definition of popular terms” like infrastructure, he said. “We can’t allow differences outside of those core elements to prevent us from making the investments we need.”
“We shouldn’t continue to make policy for the 1980s,” - Joe Brusuelas, RSM Chief Economist
Brusuelas also cautioned that policymakers not lose sight of the critical need to modernize the economy so it can compete in an age of digital technologies and lower carbon emissions.
“We shouldn’t continue to make policy for the 1980s,” he said, and try to recapture an economy based on manufacturing and heavy industry, as important as those sectors are.
Managing the economy
Beyond infrastructure, Brusuelas and Bradley talked about the management of the economy in general, and the prospect of inflation in particular, which has generated increasing concern among executives recently.
Both Brusuelas and Bradley acknowledged that prices in certain sectors of the economy had risen recently amid acute shortages of supply, but both also viewed the overall trend as transitory, and not likely to last. While this is difficult for businesses that rely on, for example, raw materials like lumber and copper, there is not as much risk that those increases will translate into sustained higher inflation.
Brusuelas reminded the virtual audience of rising food prices amid the economic slowdown of the pandemic last year. “People were worried this would stick,” he said. “But instead, food prices have fallen” back to their recent historical average.
The bigger concern, Bradley said, is if there is a more permanent shift by policymakers to tax investments and emphasize consumption, which could potentially dampen growth.
The takeaway
In the end, Brusuelas and Bradley struck an optimistic tone about the economy, and the prospect of entering an enduring period of growth. Both acknowledged how painful the pandemic had been in human and economic terms, but they stressed the need to look forward.
As Bradley said, “Today’s economy is not our grandfathers’.”
