The U.S. economy grew at 6.4% in the first quarter of 2021 as the combined impact of a mass vaccination rollout and federal stimulus checks triggered a surge in consumer spending.
But mature economies like that of the U.S. cannot sustain such a high rate of growth forever. So, just how long can this economic boom last?
Three forces are currently driving the nation’s economic growth, according to Edward Stuart, emeritus professor of economics at Northeastern Illinois University. The first is monetary policy from the U.S. Federal Reserve that is keeping benchmark interest rates at historic lows, making it cheap to borrow money. The second is the impact of President Joe Biden’s stimulus measures that not only helped individuals but also sent money to state and local governments. And the third economic driver – which Stuart says is clearly the most significant – is the COVID-19 vaccine rollout.
So long as vaccines are able to control the spread of COVID-19 variants, Stuart sees little that could derail economic growth this year. But he said the fate of Biden’s infrastructure plan will help determine long-term gross domestic product growth.
“We will eventually plateau, and the plateau is going to be determined by the infrastructure bill,” said Stuart. “I think the next round of spending — the infrastructure spending, I think would have been necessary even without the pandemic … To get growth we need changes in humans and changes in equipment and that’s what the infrastructure bill will do.”
Stuart hopes infrastructure investment will allow the U.S. to get long-term economic growth in the range of 3%, where it was in the prosperous postwar years of the 1950s and 1960s, rather than around 2%, which is what we’ve typically seen in recent decades.
Michael Miller, associate professor of economics at DePaul University, agrees that short of a vaccine-resistant coronavirus variant, there is little on the horizon that could upend the U.S. economy. But he knows the current level of growth is not sustainable.
“We cannot grow at these kinds of rates for very long because we are essentially limited by three things,” said Miller. “The long-run growth of the economy is determined by increases in the labor force, increases in productivity, and any changes in the hours worked. In the long run we can’t grow faster than, say, 2.5% or so.”
Miller notes that supply chain issues are having an impact on manufacturers, driving prices of products higher and fueling inflation. But both Miller and Stuart believe the spike in inflation will be a temporary phenomenon.
Leisure, hospitality and travel were among the sectors hardest hit by pandemic lockdowns, and Miller predicts they will come back strongly as pent-up consumer demand is released and life slowly returns to a semblance of normality.
“We are seeing that the groups that were hurt the most: leisure, hospitality and so forth, that’s all coming back. And that’s what you would want. And those jobs are going to come back eventually at higher wages because they are going to have to offer those higher wages to get the workers to come back,” said Miller. “Manufacturing is doing fine. It’s just that they are bumping up against supply problems. So in some sense, that’s a good sign for the future that there’s still a lot of pent-up demand and orders yet to come in.”