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The Long Slog Recovery!

Economists at First Trust Portfolios Canada say a full economic recovery in the U.S. is still multiple years away. The economists are convinced that any tax increases under a Biden win would not kick in until at least 2022 and maybe 2023.

A full economic recovery in the US is still multiple years away. The surge in growth in the third quarter is largely related to many businesses going from a total lockdown to a new COVID-19 normal. Production and construction six feet apart, no fans in the stands, and 50% occupancy. Meanwhile, many small businesses (and some not so small) have simply disappeared.

This suggests that although growth should continue after the third quarter, it's not going to be nearly as fast. You can only re-open your business once, not again and again (unless lockdowns happen again, which would send the economy back into negative territory).

We don't think we get back to the level of real GDP we saw in late 2019 until late 2021. And that's really not a full recovery because, in the absence of COVID-19, the economy would have grown 2% or more, per year, in the interim. If we define a "full recovery" as getting back to an unemployment rate at or below 4.0%, we'll probably have to wait until 2023.

The pace of the recovery in 2021-22 will depend not only on the course of COVID-19, as well as development of vaccines, and therapies, but also public policy. Reducing overly generous unemployment benefits, even if gradually, would help get many back to work.

Some investors might be concerned about tax and regulatory increases in 2021, but it appears increasingly likely that any tax increases would not kick in until at least 2022 and maybe 2023.

If Joe Biden wins the Presidency and the Democrats take the US Senate, it would likely be by a very narrow majority. In that instance, we would imagine at least several Democrats balking at immediately imposing tax hikes. Remember, when President Obama took office in 2009, the Democrats had 59 seats in the US Senate, and taxes didn't go up until 2013. This was because Democrats were hesitant to hike tax rates when unemployment was high and the economy was slowly recovering from the Financial Panic of 2008-09.

In addition, a President Biden would likely face a federal judiciary that more strictly limits federal regulators to issuing rules that stick to the laws passed by Congress and don't go beyond. This makes executive orders "increasing" the power of regulators harder to push through than those that "limit" those powers. And the Supreme Court may get a new member soon.

Either way, don't expect the rapid growth in the third quarter of this year to last. It's going to be a long slog back.

Editor’s Note: This is an edited version of a report by First Trust Portfolios Canada, a mutual fund dealer and investment fund manager. The First Trust family of ETFs span across different geographies and asset classes. For more information visit

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