Economic predictions with Gary Shilling

Information verified correct on July 8th, 2021

American financial and economic advisor Gary Shilling shared his thoughts on how the U.S. will recover after the pandemic.

What does the workplace look like once the workforce is vaccinated?

Well, it’s going to look different. Obviously, people have gotten used to working from home. And we are learning how to use telecommunication technology that’s really been there, but we never use it. I just got awesome client calls using Zoom. That’s becoming standard. But maybe people will be working one or two days in our offices instead of being there full time. The polls show that over half of employees would like not to spend full time in their offices. If people really want to work from home more of the time during a week, companies will have to adapt to that.

Employers are legally allowed to fire employees who refuse to get the vaccine. But will they actually go through with it?

I think it’s probably going to happen more on a state-by-state basis where many of those regulations are formulated and enforced. I rather suspect we’re going to end up with some kind of identity cards. You want to go on an airplane, and you’re probably going to have to have an identity card that says you’ve been vaccinated.

American economy

Which jobs or industries do you think will go extinct in the next five years because of the pandemic?

I don’t know that the pandemic itself is going to force any into extinction. But the trend toward bricks and mortar stores going out of business will probably be speeded up. We’ve seen that now with a pandemic because ordering from home has been speeded up. And it’s one of the things you get used to it. This is going to increase the demise of malls. But I think it’s more a speeding up existing trends rather than anything completely new.

How is commercial real estate going to adapt to the post COVID world? And are we done with these big flashy city headquarters?

Yes, I think there’s going to be a lot of pressure on commercial real estate, people probably sharing desks and not needing as much office space as before. I think it’s going to be a lot of pressure on commercial real estate, which is very expensive in major cities. Now, these things go in cycles. After World War Two, you had the huge development of the suburbs.

More recently, about 10 years ago, younger people wanted to be in the city, where the action is. Many of them didn’t even have driver’s licenses because they wanted to be a place where they could walk to work, shops and theaters, etc. Now you’ve got it swinging the other way. I don’t think you would say that these major cities are dead. But I think that they’re probably going to have to be some significant changes to become attractive again.

Where do salaries go from here? Are we going to see compensation to our highest earners plummet as companies no longer pay a premium to employees who live in higher cost of living cities?

People are allowed to work in much cheaper locales. That doesn’t necessarily mean that they’re paid less. Salaries are really ultimately based on the cost of living. And if you have people moving out of expensive cities into cheaper areas is probably going to put downward pressure relatively on wages.

However, we’re probably in a cycle where labor is going to do better than capital. If we look at charts of profits, the share of national income, as opposed to labor compensation and their mirror images – neither side gets the upper hand, and definitely, you wouldn’t expect that in a democracy.

But capital profits have had a very high share relatively in recent years, and it’s staring down. Labor share, I think, will probably increase in general, at least on the sort of the blue-collar level. You’re probably going to see higher real, real incomes.

What’s the future of child care and schooling in our country? And are we about to see a major disruption there?

What happens typically, when you get traumatic situations, fertility rates drop.No doubt, we will see that revealed in coming quarters, many people simply had to postpone child care, child-rearing, childbirth, marriages, and so on. There may be a lot more emphasis on childcare, government-supported childcare, but I’m not sure that that’s going to make a huge difference in terms of birth rates.

We’ve seen women fall out of the workforce at a much higher rate because of the childcare crisis. Does this trend persist post-COVID? And should the government be stepping in to fix it?

If you look at labor participation, this is a percentage of people who are either working or actively looking for work. The labor participation rate for men in this country has been declining throughout the whole post-war period, and women rushed into the labor force starting back in the 60s and 70s.

But actually, about 10 years ago, their participation rates peak and they started down, and right now, they have gotten a further push down with a pandemic, the necessity of staying home to take care of children, and so on. So we probably are going to see a continuation of these trends. Now what has filled the gap in this country is immigrants. I think it’s probably going to help this country in an era when birth rates are declining.

Are we going to have a stronger economy in 2021 than we did before the pandemic hit?

No, it doesn’t look that way. It doesn’t look that way we’re making back, making up part of the shortfall, obviously. But it looks to us as though economic growth this year is going to be muted. The facts are that all this money that’s been pumped out and into individuals a year ago, back in December, and now more recently, it’s not being spent – it’s been saved. A year ago, all that money went out to consumers save 71%. And what’s interesting is people at the bottom of the income heap were the biggest savers.

A survey shows that 16% of millennials don’t have 400 bucks for an emergency. You expect them to spend spend it all, but they saved it. So I think that we’re going to see a much slower economic growth as we move through the year. It’s going to disappoint a lot of people, including equity investors. I think consumers are going to continue to hang on to allow that stimulus money.

How long will it take for the economy to fully recover? And what will the shape of the recovery look like?

I think it’ll take a couple of years. As a matter of fact, if you look at some of these forecasting bodies like the International Monetary Fund, the Congressional Budget Office, which is nonpartisan, they don’t see the economy getting back to where it was before the pandemic started until next year, or maybe even later. And I think that very well could be the case. I think it’ll be well into next year before we’ll be back to the levels of total economic activity that we had before the pandemic hit. I know, sometimes people talk about a K-shaped recovery or a W, or a U.

Is there a certain shape that you see this recovery taking in the next few years?

I think you’re going to see a change in consumer spending. You’re probably going to see more government involvement in the economy, a bigger share of the economic pie going to the government. That is the historical trend: whenever there are major problems, government tends to increase its activity that certainly was resolved going back to the Great Depression. As I say, I think consumers are probably going to be rebuilding their assets and liquidity, paying off debt. Increasing saving means that incomes are going to grow faster than spending. And again, that’s a factor that subdues economic growth.

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