Why Bank of America is Optimistic About US Economic Growth
Bank of America (BofA) has expressed a positive outlook on the structural strength of the US economy, citing a sustained increase in labor productivity growth as a key factor. According to BofA, this productivity cycle is expected to be long-lived, supported by three main drivers: increased business formation, reduced regulation, and capital deepening.
Key Drivers of US Economic Strength
Since 2019, business applications have surged by approximately 37%, particularly in the technology sector. BofA describes this shift as a reversal of the “startup deficit” that previously hindered productivity. The surge in entrepreneurship is fostering innovation and boosting overall economic efficiency.
In addition, the bank views deregulation as a critical force in sustaining economic momentum. Industries such as Financials, which have historically faced heavy regulatory burdens, stand to benefit significantly from recent policy shifts. Reduced regulations could enhance operational flexibility, allowing businesses to invest more in growth initiatives.
On the investment front, BofA highlights the urgent need for capital refurbishment. The US capital stock, which has been aging and inefficient, is now experiencing a revitalization. After years of dominance by technology investments, capital expenditures have broadened to include infrastructure, data centers, and reshoring efforts. This renewed focus on capital deepening is expected to expand the economy’s productive capacity over time.
The Role of Artificial Intelligence in Productivity Growth
While artificial intelligence (AI) is often regarded as a transformative force, BofA remains cautious about its immediate impact on macroeconomic indicators. The bank notes that, despite significant investment, there is currently little concrete evidence of strong AI monetization. Additionally, recent developments surrounding Deepseek have introduced further uncertainty.
However, BofA acknowledges AI’s long-term potential, stating that it represents an upside risk to their outlook on productivity and growth. If AI adoption accelerates and translates into measurable economic benefits, it could further enhance labor productivity and efficiency.
Link Between Productivity and US Equity Market Performance
BofA also underscores the connection between productivity cycles and stronger equity market returns. Historically, productivity growth has been accompanied by higher interest rates, stronger nominal GDP growth, increased demand, and above-average S&P 500 returns. Furthermore, the rise in hurdle rates could limit the survival of “zombie” companies—businesses that rely on low interest rates to stay afloat—thereby improving overall economic efficiency.
Drawing parallels to the 1980s and 1990s, BofA suggests that the current environment is reminiscent of past periods marked by efficiency gains and higher real rates. The S&P 500 risk premium has declined to levels observed during those decades, reinforcing the bank’s belief in sustained economic momentum.
US Economic Growth Outlook
Ultimately, BofA sees productivity growth as a crucial driver of economic resilience. If the current trends persist, the bank estimates that US GDP growth could reach the 2.0-2.5% range, surpassing most conventional forecasts. With structural improvements in place, the US economy appears poised for continued expansion in the years ahead.
Conclusion
Bank of America remains optimistic about the US economy, emphasizing that factors like business formation, deregulation, and capital investment will continue driving economic growth. While the immediate impact of AI is uncertain, its future influence on productivity could further support long-term expansion. If these trends hold, the US economic outlook remains strong, with positive implications for both GDP growth and financial markets.
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