Wall Street Is Underestimating the Economic Recovery
The U.S. should be able to sustain stronger rates of growth for years to come thanks to the pandemic unlocking trends we might not otherwise have seen.
The pandemic opened new paths to economic growth.
Source: Bloomberg
The U.S. remains in a deep employment hole, with 6.7 million fewer jobs in June than there were in February 2020. But that overstates the weakness in the economy, with last week's second-quarter gross domestic product report showing American output is back at an all-time high. Last week's personal income report showed worker incomes are at all-time highs as well. What this divergence suggests is that a return to full employment will mean a higher level of output and worker incomes than is now appreciated, opening up a path for the economy to grow at a faster rate over the next several years than it did in the 2010s.
The elegant way to show this numerically is to look at the change in real GDP, employment, and wages and salaries received by workers between December 2019 and June 2021. Real GDP has increased by 0.8%. Employment is down by 4.1%. And wages and salaries received by workers are up by 6.7%. Employment and wages aren't apples to apples — the headline consumer price index level has increased by 4.9% over that time period, so "real wages and salaries" is up by a little less than 2%, but it still shows that real output and real wages are at new highs while employment remains well below its high.