Bank of America Sees US Economy Strengthened by Productivity Growth

Bank of America (BofA) sees structural resilience in the US economy, driven by sustained labor productivity growth. The bank attributes this to increased business formation, deregulation, and capital deepening.

Since 2019, business applications have surged by 37%, reversing a “startup deficit” that had previously hindered productivity. Deregulation, especially in the financial sector, is also seen as a positive force. Meanwhile, the aging capital stock in the US is undergoing a transformation, with investments expanding beyond tech to infrastructure, reshoring, and data centers. This broader capital expenditure is expected to enhance long-term economic capacity.

While AI is widely regarded as a disruptive force, BofA remains cautious about its immediate economic impact, citing a lack of strong monetization evidence. However, the bank acknowledges that AI could present an upside risk to productivity and growth in the future.

Historically, productivity cycles have correlated with stronger equity market returns, higher rates, and robust economic growth. The rising hurdle rates may also phase out inefficient “zombie” companies, which have weighed on productivity. BofA compares the current economic environment to the 1980s and 1990s, marked by efficiency gains and higher real interest rates.

With productivity growth accelerating, BofA believes US GDP could rise to the 2.0-2.5% range, surpassing most estimates. If this trend continues, it could drive sustained economic momentum and stronger stock market performance.