Executive Summary:
Last year was a picture-perfect rendering of our Roaring 2020s scenario in action. Economic growth soared on the shoulders of a productivity boom. Dr Ed expects more of the same through the decade’s end and possibly beyond. That should set the stage for excellent earnings growth, supporting our S&P 500 target of 10,000 by the end of the decade. Today, he explains why even recent labor market weakness can’t derail this narrative. It’s a “Gen-Shaped Economy,” with retired Baby Boomers keeping consumer spending aloft irrespective of the labor market. ... Check out the accompanying chart collection.
US Economy I: Productivity Is Roaring
Last week was a very good one for our Roaring 2020s scenario. That’s because last week’s batch of economic data supported our productivity-led economic boom narrative. Real GDP growth was very strong during the last three quarters of 2025. The growth rate of employment slowed dramatically. As a result, productivity growth soared last year. Unit labor costs inflation fell significantly, suggesting that consumer price inflation should fall closer to 2.0% this year.
If this scenario continues to play out during 2026 and through the end of the decade in 2029, the outlook for S&P 500 earnings is excellent and consistent with our S&P 500 target of 10,000 by the end of the Roaring 2020s. Unlike the Roaring 1920s, which ended badly during the 1930s, the Roaring 2020s could be followed by the Roaring 2030s.
Let’s assume that productivity growth transitioned from 2.0% to 3.0% in 2025 and will remain at that higher pace for the foreseeable future. That would boost real GDP growth by a full percentage point per year. It would lower unit labor costs inflation by as much. It would boost real wages of workers, more than offsetting the slower pace of employment. So the real purchasing power of consumers would continue to grow, with less of that growth coming from new workers and more coming from higher real wages. Profit margins would rise, boosting total profits and driving capital spending higher.
That picture-perfect outlook seemed delusional when we first laid it out during the summer of 2020. Six years later, it remains
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