US: Is steady and sustained growth conceivable? - Natixis

Patrick Artus, Research Analyst at Natixis, explains that the United States is currently at full employment, and its highest conceivable growth rate is slightly higher than current potential growth thanks to a gradual upturn in the participation rate.

Key Quotes

“But a scenario of steady, sustained growth of around 2% per year is an extremely positive scenario for the United States after so many years of expansion.”

“What could prevent this positive scenario from materialising?

• A sharp increase in inflation, leading to a sharp increase in interest rates. At present, however, we are seeing that full employment is having a modest effect on wage increases;
• Over-borrowing or an asset-price bubble, leading to a financial crisis. The household debt ratio has fallen considerably, that of companies has increased but is low. The only asset price that seems abnormally high is commercial real estate, and securitisation remains much less developed than prior to the 2008 crisis;
• A correction of overinvestment. This could not be the case with housing investment; corporate investment is indeed high (especially if we correct it for investment in the energy sector) given the fairly low capacity utilisation rate.”

“All in all, there is some cause for concern (commercial property prices, high level of investment relative to growth), but we see no factor that could cause a sudden downturn in growth.”