Hopes for a “V-shaped” recovery have shifted to fears of a “W-shaped” double dip.
William Greiner, president of Scout Investment Advisors, wants to add another symbol to the mix — the square root.
The square root represents a rebound, a smaller version of the V, followed by an extended period of below-average growth. No double dip, just a long, hard slog.
Greiner argues that monetary and fiscal policies globally remain supportive enough to avoid another recession.
An aging and less productive population and the heavy credit burden that remains from yesterday’s consumption, however, will drag on the U.S. economy for years to come, he predicts.
Those and other burdens will take inflation-adjusted economic growth from 3.3 percent, the average in the post-war period, to about 2 percent, hence the square root.
No big deal? Think again.
“Potentially, the economic implications as to slow growth are monumental,” Greiner said. “It is hard to overstate this issue.”
Two percent real GDP growth will keep pace with U.S. population growth of 0.89 percent a year. But it won’t leave much to form capital, fund research and development, and improve living standards.
Since World War II, the country has grown fast enough to double living standards every 29 years — translating into bigger homes, more cars and consumer goods, and more trips and meals out than previous generations enjoyed.
But at a 2 percent growth rate, living standards double every 64 years. Americans could be forced to shift their hopes for greater prosperity from their children to their grandchildren.
“My kids may see a higher standard of living, but it probably won’t be like the difference I saw from my parents,” Greiner said.
What will make the slower growth feel even worse is that nominal economic growth, or GDP unadjusted for inflation, will run closer to 4 percent in the near term, far below its 7 percent average in recent decades.
That will make it harder for companies to increase revenues and justify additional investments. By next year, earnings, which have come in stronger than expected this year, are apt to weaken.
Stock markets will probably trade in a constrained band in the years ahead, until the country settles on the hard choices needed to find a way out, Greiner said.
People should also prepare for more frequent economic cycles, a greater sensitivity to interest rates and a shift from consumption to savings.
Rather than a span of 10 years between recessions, expect something more like three or four years, as was common from 1948 to 1983, he said.
Aldo Svaldi: 303-954-1410 or asvaldi@denverpost.com
