Opportunities in the economic restart

Ford v Ferrari

As vaccinations rise, lockdowns lift, and consumers once again feel confident, expect an economic surge in the US in the spring and summer of 2021. But the new economy will not look like what we had before.

Three things will drive the economic resurgence.

First, at least among Americans with middle incomes and above, savings are up. People were unable to spend as much in the last year — both due to economic anxiety and to an unwillingness to do things like go to malls and stores, go to restaurants, or travel. As this anxiety lifts, I expect a spending spree.

Second, there are distressed companies who were caught short of resources in the pandemic, and their assets will be attractive to others. Companies hoping to grab market share in the restart will invest in advertising and expansion. This will also propel the economy forward.

Third, the Biden administration has already injected two trillion dollars into the economy with the American Rescue Plan Act of 2021 and proposes to add another couple trillion over the next eight years with his infrastructure plan. Even with tax increases to fund it, the infrastructure plan would generate a net elevation in spending because the spending happens faster than the tax increases.

What will change?

I have an analytical mind, trained by 20 years as a technology analyst. I am not a macroeconomic analyst. But my analyst’s mind is drawn to change — to examining what might be different in the next six to twelve months, and where advantage might be. (I am not an economic advisor — if you make investments based on what you read here, you do so at your own risk)

So, what might change and who might benefit?

  • Corporate technology purchases will surge. We’re not all going back to the office — the hybrid workforce is the future. I expect companies to make continued investments in collaboration technology of the type that Phil Simon describes in his new book Reimagining Collaboration. Companies like Microsoft, Salesforce, Google, and Zoom will benefit. The focus will be not just on remote work, but on harmonizing remote and office workers. Look for innovations from startups using technologies like telepresence and augmented reality to help reinvent everything from sales to manufacturing.
  • Retail will re-emerge in hybrid form. Companies with inferior ecommerce were toast in 2020. But they still retain valuable brand names and real estate. Look for the rise of hybrid retailers that are agnostic about where and how you shop, where and how you buy, and where and how you return things. Indochino’s showroom model may be a model for the future.
  • Supply chain rebalancing will buoy American manufacturers. Supply chains developed over the last 30 years on the assumption that products could be sourced anywhere and shipped anywhere. That was a problem in 2020, and companies began to rebalance their supply chains to be more local. The supply chain of 2021 needs to be more resilient, flexible, and local — which is good news for American manufacturers.
  • Look for a travel resurgence. Vaccinated people are already starting to get back on airplanes and travel for leisure. Tourism will have a record summer in 2021. (Business travel will rebound as well, but not to previous levels — the virtual meeting is here to stay.)
  • Entertainment production will explode. The pandemic year created an extraordinary situation for entertainment producers — a surge in demand from streaming suppliers delivering to homebound consumers was paired with COVID-based interruptions in the ability to produce programs. The viewing will continue, and once it’s safe to work again, producers will be in great demand to fill the gap in the entertainment supply. This will be a great time to be a writer, an actor, a director, or a behind-the-scenes crew member. Live theater will also bounce back as people return to theaters. I wish I were as optimistic about movie theaters, but I wonder if people with 60-inch TVs and surround-sound systems at home will be so eager to crowd back into sticky theaters where every cough in the audience is scarier than the zombies on the screen.
  • Health care will rebound. People went to the doctor less in 2020. They’ll be returning in 2021 to deal with the balky joints, troubling lumps, chronic care, wellness checkups, and all the other routine issues that we put off treatment for. The treatment of chronic long-term symptoms from COVID will create a whole industry of therapies — just as similar health-care complexes exist for cancer, heart problems, and diabetes. The innovative mRNA technology in Moderna and BioNTech’s vaccines could create new vaccine tech for diseases like malaria, AIDS, and flu. The Biden administration’s reopening of the Affordable Care Act exchanges will usher in four strong years for the health-care sector.
  • People will buy cars and houses again. The housing market is already surging. People are also likely to resume buying cars at the previous pace. I doubt that commercial real estate will come back as strong — hybrid workers don’t need as much space — but we may see some retail and office buildings turned into housing.
  • State and local government will see new signs of life. There’s $350 billion in funding for states and localities in the American Rescue Plan, and if the infrastructure plan passes, more opportunity for local investment.

Could there be inflation as well? Don’t get spooked if you see see some troubling inflation numbers in the next few months; those will simply reflect year-over-year comparisons to depressed pandemic times and demand surges that have outpaced supply for a little while. In the long-term, certainly, all this deficit spending and economic activity could reawaken inflation. But for at least a year, there will be more opportunity than worry, at least in the rebounding parts of the economy.

I also wonder about the people hardest hit by the pandemic and the economic fallout that came with it. The jobs are coming back, including unskilled labor, minimum-wage jobs, and gig workers. But people who ended up indebted, homeless, or in distress during the pandemic will probably be the last to benefit from the return of a healthy economy.

As you read any of what will likely be thousands of articles about the restart, try to think long-term. Yes, things will be coming back. But they’re unlikely to return in quite the form they had before the pandemic. The opportunity is in how things have changed and transformed for this new way of working and living. That’s what to look out for.

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  1. I agree with this analysis. Auto and home sales have been strong but both will probably get stronger from stimulus. This Administration seems very focused on equity so I doubt the underprivileged will be left behind.

  2. Entertainment production may “explode”, but the demand will diminish for movie and TV entertainment, IMHO.

    More work means less “forced leisure” time.

    Plus, there was already a long term trend with alternative on-screen entertainment displacing TV and movie consumption (in USA), particularly in the younger demographics – expect this to continue.