The US economy is enjoying its longest uninterrupted stretch of expansion since at least 1854, leaping over hurdles including the eurozone crisis, turbulence in the developing world and now trade wars to surpass the 1990s economic boom — at least in duration.
Recessions are typically defined as two consecutive quarters of shrinking gross domestic product, but the National Bureau of Economic Research — the semi-official arbiter of US booms and busts — uses a broader, more qualitative definition, and reckons that the current expansion started in June 2009.
That means that this month the US expansion has now hit its 121st month, making it longer than the golden era enjoyed by the economy from March 1991 to March 2001, and more than twice as long as the average post-WWII expansion.
“This cycle has now been going on for longer than The Beatles were together. It has persisted for a more extended stretch than the original run of Seinfeld on network TV. It’s older than Instagram,” observed Brian Levitt, a strategist at Invesco.
Gauging recessions is tricky, even when one is in the middle of one, so it is at least theoretically possible that the US economy might already be in a funk. The NBER did not declare that the US was in a recession until December 2008, a year after it decided the economy had begun to shrink, and did not announce that it had officially ended in June 2009 until September 2010.
This year, the US economy expanded at an annualised rate of 3.2 per cent in the first quarter and is still growing by about 1.5 per cent, according to the “nowcasting” model of the Atlanta Fed, making it likely that the record has in fact been broken.
Yet the new record comes at a time when some economists and investors fear that the next downturn is looming. Global economic data has been mixed, and a recent truce between the US and China on trade has done little to allay concerns that the end of the post-crisis recovery may be nigh.
Equity markets rallied after the weekend’s G20 summit, but bond markets were relatively unmoved by the tentative de-escalation of trade tensions. Interest rate futures indicate that traders think the Fed is going to have to cut interest rates aggressively over the next 12 months to ensure that growth remains on track, but some investors think the expansion will probably end soon.
“As uncertainty around trade policy is unresolved, the impact on the growth outlook is becoming more pronounced,” said Chetan Ahya, Morgan Stanley’s chief economist. “Business confidence and [corporate investments] have slowed to multiyear lows. We project global growth to slow even further, and any sustained escalation from here raises recession risks.”
The post financial crisis recovery has also been weaker than most other economic setbacks since the second world war. US GDP is now about 20 per cent bigger than its pre-crisis peak. In contrast, the 1990s boom increased the size of the US economy by 41 per cent, according to RBC Capital Markets.
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