Both "normal" and "abnormal" economic factors are likely to drive the US economy toward a continued period of sub-par growth, says AllianceBernstein (AB).
In an economic update – On the economy: new normal or abnormal? – AB said several factors are acting as a headwind to US growth.
“These include slower productivity (lack of innovation and little new investment), slower labour force growth (decline in participation rate), tighter lending standards and higher capital requirements for banks, and relatively high debt levels for the private and public sectors,” AB said.
“Certainly, these economic and financial headwinds have been powerful and persistent over the past five years, and the new normal crowd has accurately captured their impact.”
In addition, the report said abnormal factors are also impinging on US economic growth, which is likely to sit at around two per cent.
According to AB, these factors include a contraction in household borrowing in two of the past five years and a decline in nominal government spending in three of the last five years.
“Each of these abnormal factors directly exerted a powerful and persistent retarding influence on nominal GDP growth,” said AB.
The update said that the one per cent cumulative change in household borrowing from 2010 to 2014 is the smallest gain in any economic recovery in the post-war era. Moreover, cumulative growth for the five-year period was two per cent, the smallest gain of any recovery in the post-war period.
"Taken separately, each of these occurences is a once-in-a-generation event, or even longer."
However, the update argued that as the economy enters 2016 the abnormal factors will begin to reverse.
“On the government side of the equation, we can confidently conclude that the fiscal drag is over. State and local budgets are much improved, and nominal spending has been rising for two consecutive years.”
Moreover, lending standards are also improving and becoming more relaxed. Household balance sheets are also in better condition, said AB, and household borrowing will likely grow in 2016.
“The abnormal factors appear to be reversing direction, moving from retarding to promoting growth,” the update said.