Just 3% Growth Will Spur Economic ‘Animal Spirits,’ Paulsen Says

(Bloomberg) -- One of Wall Street’s biggest bulls sees further room for the post-pandemic recovery to run, even as the International Monetary Fund and Goldman Sachs Group trim their forecasts for yearly growth.

Jim Paulsen, chief investment strategist at the Leuthold Group, says even if annualized U.S. gross domestic product drops as low as 3%, it will still feel like boom times compared with recent history.

“We’re going to slow down this year,” Paulsen said in an interview on Bloomberg Television’s “Surveillance” program, citing possible GDP growth rates of 6% this year, 4 1/2% next year and slower from there. “But those rates are still something we haven’t seen in decades. And you could see the animal spirits it starts to create in companies and consumers and laborers and investors.”

Paulsen says signs of productivity gains are emerging that should offset any concerns about stagnant growth colliding with rising costs.

“When you look at hours worked last quarter, hours worked were 5% annualized in the quarter,” Paulsen said. “If you put a little productivity on there, that’s 6 to 7% real GDP growth in the quarter.”

Moderating prices have yet to be seen in the latest reading on consumer prices from the Labor Department. Prices jumped 5.4% on an annualized basis in September, higher than the average estimate of analysts surveyed by Bloomberg.

But Paulsen said companies have the capacity to keep those rising costs from cutting into their closely-watched earnings figures.

“They’re controlling their expenses. I think they have incredible pricing flexibility on top line in general,” he said. “Even though some costs are going up, their top line pricing is up to the task. So I don’t really expect to see much margin erosion and pretty good top line.” 

©2021 Bloomberg L.P.