What Kind of Economy Will the Next US President Inherit?

Not every presidential term begins with the same raw potential for economic success. Whether the 2008 winner was Barack Obama or John McCain, the 44th American president was going to have to deal with the messy fallout of the Global Financial Crisis. Get ready for slow growth and a jobless recovery. Winning in 1980 meant suffering through a nasty recession as the Federal Reserve raised interest rates and reset inflation expectations. On the other hand, winning in 1992 and 1996 meant enjoying the benefits of a technology boom, the foundations of which were already in place, more or less.

Now, as The New York Times sees things, the winner of November will walk into a pretty good situation. This from "2025 Could Be a Great Time to Be President, Economically Speaking" by reporter Jeanna Smialek:

The next couple of years are shaping up to be solid for the U.S. economy. Inflation is returning to normal. As that happens, the Federal Reserve is preparing to cut interest rates. A huge burst of infrastructure spending under the Biden administration has taken time to ramp up, but projects both small and large are likely to break ground in earnest in 2025 and 2026.

In other words, the next POTUS might arrive at a good time in the business cycle, thanks to both monetary and fiscal policy. To that analysis, I would add that there's solid reason for optimism about labor productivity growth, which is the economic factor most important for higher living standards. Not only Thursday's second-quarter GDP report was surprisingly strong at 2.8 percent, but the internals—specifically, strong spending on business equipment and intellectual property—were quite productivity friendly.

"The best aspect of the second quarter report was the large advance in productivity-enhancing investment," said Joseph Brusuelas, chief economist at RSM, in a research note. That investment led Brian Bethune, an economist at Boston College, to predict that productivity increased an estimated 1.5 percent to two percent annualized in the period. If he's right, it would mark a resumption of the strong productivity growth seen in 2023—3.3 percent (Q2 2023), 4.6 percent (Q3 2023), and 3.5 percent (Q4 2023)—but paused in the first three months of this year with a 0.2 percent gain.

Nothing should be taken for granted, of course. Policy decisions will matter, both next year and beyond. Tariffs, immigration restrictions, and unchecked spending could spoil the bullish outlook, just as more science investment, more foreign talent, and less anti-growth regulation could support it. A roaring 2025 would be great. A roaring rest-of-the-2020s would be better.

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