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Will the U.S. economic recovery reprise the ’90s surge?

Work from home, women in the labor force and automation—all could help boost potential GDP growth higher than in past cycles.

As the U.S. economic recovery picks up steam, some observers are wondering what history might tell us about the decade now underway. Specifically: Is the U.S. economy doomed to repeat the inflation and stagflation of the 1970s? Or might the economy mount a welcome reprise of the 1990s, when labor productivity jumped (the last time that happened, in fact) and GDP clipped along at an average pace of around 4%?

It’s too soon to answer that question, but on balance, we’re optimistic—certainly more optimistic than the consensus view of economists.

While the U.S. economy never regained its pre-crisis growth rate during the sluggish rebound from the 2008 global financial crisis, a resilient U.S. economy is now moving quickly from early to mid-cycle—despite the aftereffects of the COVID-19 shock. 

How quickly? We expect the level of GDP to return to its pre-pandemic trend as soon as the first half of 2022.

The economy never regained its pre-GFC growth

Work from home

As our collective Zoom fatigue attests, “work from home” proved a dominant trend in 2020. In labor economist terms, at its peak in 2020 about 60% of all U.S. worker hours were remote versus a pre-2020 average of slightly more than 5%.

Surveys suggest that, post-pandemic, about 20% to 25% of work will be done remotely. The Bureau of Labor Statistics estimates that about 45% of work could feasibly be done remotely.

Work from home means less time commuting. Prior to the pandemic, the average U.S. worker spent about 54 minutes per day traveling to and from work. Surveys suggest that as much as 35% of this “time savings” went into extra working hours during the pandemic.

The cumulative effect could be meaningful. In our view, fewer commuting hours could increase potential GDP by 0.1 percentage point per year over the next decade.

How else might the work from home trend boost potential GDP? A key part of the answer might involve the role of women in the workforce.

More women in the workforce?

Many women fled the labor force in 2020 when they were unable to manage both their child care and workplace obligations. Not surprisingly, that trend got a lot of media attention. But there’s a potential silver lining here that has gotten less notice.

As work from home becomes more commonplace (aided by more effective technologies), it may significantly and permanently increase the number of women in the workforce. That could narrow the longstanding, roughly 10 percentage point gap between the working-age male and female labor participation rates. In the chart below, we show the pre-pandemic participation rates for men and women.

What would a narrower gap mean for potential GDP?

Remote work may help close the gap

If women fully close the participation gap versus men, it would boost the available labor supply by roughly 6%. If this increased participation occurred over a 10-year period, potential GDP would increase by about 0.6 percentage points per year.

Even if the gap is only half-closed over a 20-year period, it would boost potential GDP by 0.15 percentage points per annum. That’s still a significant gain.

Automation, unemployment and potential GDP

Increased automation will likely spur further gains in productivity and potential GDP.

Here’s how a virtuous cycle might unfold: Strong wage growth leads to more of what we call “automation capex,” a dynamic we saw in the 1990s and which we’re beginning to see again (chart below). When firms invest in automation, it improves the productive capacity of the overall economy.


Automation CAPEX is picking up

How might automation impact the job market? Undoubtedly, automation will eliminate some number and categories of jobs. But the U.S. labor market is incredibly fluid. Assuming aggregate demand stays strong, over the next three to five years, automation will likely lead to a net gain in jobs. The benefits from the overall economic pie expanding would outweigh the scarring impact from those who lose jobs due to increased automation. We expect that many—not all— laid-off workers will make their way to the fast-growing, labor-intensive sectors of the economy, such as clean energy installation and caring for the elderly. The bottom line: Automation need not lead to permanently higher unemployment, just as it didn’t in the 1990s.

Investment implications

An increased GDP growth rate presents a few key investment implications. At some point in the next cycle, it might allow the Federal Reserve to revise up its estimate of the long-run neutral federal funds rate. All else equal, this means longer-term interest rates may rise more in the 2020s than they did in the 2010s.

To be sure, we’d likely have to wait years for the theme of higher potential GDP growth to completely play out in fixed income markets. But the equity markets may already be reflecting upward revisions in long-term growth expectations. In the 1990s, in fact, equity markets reflected the pickup in potential GDP growth much earlier than fixed income markets did. In this cycle, we expect S&P 500 earnings growth to average 9%, up from 6.5% in the post-financial-crisis period—an optimistic view relative to consensus.

Our own expectation of higher potential GDP growth reinforces our preference to overweight equities and underweight fixed income. It also means we’ll likely maintain our preference for longer than we would have in past cycles.

Speak with your J.P. Morgan team about how our economic views might inform your own financial planning goals.



All market and economic data as of July 2021 and sourced from Bloomberg and FactSet unless otherwise stated.

We believe the information contained in this material to be reliable but do not warrant its accuracy or completeness. Opinions, estimates, and investment strategies and views expressed in this document constitute our judgment based on current market conditions and are subject to change without notice.

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