Trump or Biden for Stronger U.S. Economic Growth?
Nancy R. Lazar is head of economic research and founding partner at Cornerstone Macro, which provides economic research to institutional clients. She spoke with Thornburg Investment Management about what she sees for the U.S. economy in Q4 and beyond.
Thornburg: How will the U.S. election affect U.S. economic growth potential?
Nancy Lazar: Because there is such bifurcation of views between the two platforms, there is going to be near-term uncertainty—both fiscal and consumer. I believe as you move into the fourth quarter, after a very robust third quarter GDP growth of 20% or higher, growth will slow down to 5%. Cornerstone expects 4% GDP growth for 2021 because we see a long wavy recovery, tapering off towards the back part of that year to the slower rate.
Our view is that raising corporate and personal tax rates, as suggested by the proposed Democratic economic policy announced so far, is likely to discourage business and personal investment. Were President Trump to be re-elected, Cornerstone would expect to see something like 3% GDP growth. Under Biden economic policies, we would expect closer to 2 to 2.5% GDP growth, starting probably at the end of 2021 or beginning of 2022.
However, two events could spur a higher GDP growth rate: a working vaccine that could be broadly distributed and an economic policy that encouraged investment instead of taxes.
Thornburg: What are key economic learnings taught by the coronavirus?
Nancy Lazar: One is to control your supply chain. It’s become obvious, for example, with pharmaceuticals, that it is dangerous to rely on another country for your global supply. That realization is one reason you are seeing many of the coronavirus vaccines being developed here in the United States.
Two is the importance of maintaining an efficient health care system. Health care is 15 to 20% of U.S. economic activity depending on how you measure it—so a big chunk.
Three, a broad footprint of job creation is needed to come through a crisis. This means understanding the range of employment needs from highly educated workers to the least educated.
Thornburg: The last time we spoke you mentioned that the world was entering a new stage of globalization that was accelerated by the coronavirus. How is this playing out and what does it mean for U.S. investors looking for growth?
Nancy Lazar: We have seen more production move back to the U.S. We have seen Japan start to move production out of China back to Japan and to other Asian countries. More countries, including the United States, will benefit from the shift of production to emerging markets and developing markets.
Where production is going is of great interest to us. For example, a Taiwan semiconductor company recently announced plans for a new manufacturing plant in Arizona. We have counted over 100 companies that by the middle of this year had announced plans to move production back to the U.S. The heartland of middle America is our favorite emerging market because that is where a lot of these production facilities are going.
To the extent that you have seen a GDP rebound, there is also a corporate profit rebound. I don’t think profits are at risk, except in certain sectors. Corporate profit margins are still relatively high and healthy, which increases the odds that we can have a sustained expansion once the virus is behind us.
Cornerstone: U.S. Corporate Profit Margins Look Healthy.
Source: Cornerstone Macro
The interview was edited for length and clarity.