Bloomberg’s published consensus expects no change from the ‘new normal’ as far as US growth is concerned over the coming two years. But the new political leadership has been washed into Washington precisely because the ‘new normal’ produced unacceptable results. It is therefore likely to strain every sinew to break out of it. And the current state of both returns to the strategic factors of production, and shorter-term potential cyclical accelerators mean there is a good foundation for the breakout to be made.
Since 2010, quarterly GDP yoy growth has averaged 2.1% with a standard deviation 0.7 percentage points. This expansion has been a sustained but grinding affair, never seriously threatening to develop the usual cyclical dynamics either for recession or boom. And for the next two years, the consensus expects more of the same, settling on 2.3% GDP growth, with a 15% chance of recession.
But to expect ‘the new normal’ to linger indefinitely no longer seems cautious. Radical change in political, financial and ultimately economic attitudes and choices have made it onto the US agenda. The desire to break out of the new normal is likely to frame major policy choices made this year and next. Whether that is possible or actually desirable will be discovered only in the long-term. But an attempt will be made.