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1st October 2021, 2 mins.
For quite a while now, we have been talking about the possibility that the US may be on the verge of a productivity boom.
We do not wish to rehash all the reasons for our optimism on this front, but suffice to say that if there were such a boom it would be a welcome development. Not least because it would allow for the strong wage growth to be less inflationary.
In this regard, market participants are watching the public infrastructure bill debate in the US closely.
Whilst it’s true that the private investment will always be the key driver of productivity growth, the private sector’s job would be easier if public infrastructure were in better shape.
Private businesses move their goods by public road and rail, across public bridges and so forth.
According to Pantheon Economics, US federal government investment in everything except software is close to a 60-year low.
Total federal government investment in 2019 – ignoring 2020 due to COVID-19 distortions – was equal to 1.6% of GDP. This is about one-third below the long-run average.
Last night the Democrats in the House of Representatives did not reach an agreement which would have allowed the infrastructure bill to pass. There will be another attempt this evening to form a consensus such that it might pass.
We are of the view that, ultimately, a bill will pass, and this will be another brick in the wall for our productivity story.
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