Longest, Not Strongest Expansion on Record
In a week, the U.S. economy will celebrate its longest expansion on record (or at least since records were first kept in the 1850's). As of July, there will have been 121 consecutive months of growth, surpassing the 120 months of the technology boom of the nineties. (As a frame of reference, the average expansion lasts 58 months)
It feels like we are entitled to an extended period of growth, especially considering how much pain the Great Recession inflicted on the country and world. That said, while the current expansion will be the longest, so far it is not the strongest. That award goes to the 1960’s expansion. Here are top three (as measured by percentage increase of Gross Domestic Product), followed by our current one:
The Sixties (Q1 1961 - Q4 1969): +51.9%
The Tech Boom (Q1 1991 - Q1 2001): +42.6%
The Eighties (Q4 1982 – Q3 1990): +38.2%
The Aught-Teens (Q2 2009 – Q2 2019): +24.9%
We are not alone, according to Morgan Stanley chief global strategist Ruchir Sharma. He notes that the U.S. two percent annual growth rate and the three percent for the whole world, are “both nearly a point below the average for postwar recoveries.” Still, given how horrible things were ten years ago, there has been tremendous progress. Here’s where we stand in some big categories:
Jobs: In June 2009, the unemployment rate was 9.5 percent, on its way up to a peak of 10 percent in October 2009. Through May, the rate stands at a near 50-year low of 3.6 percent and the broader rate (U-6), which was 16.5 percent ten years ago, is now at a 19-year low of 7.1 percent.
Since the labor market bottomed out at the end of 2009, we have seen 104 consecutive months of job creation, for a total of about 20 million positions. In the first half of the recovery, there was concern that wages were lagging but a combination of a tightening labor market and an increase in municipal minimum wage levels have helped boost incomes, especially for lower earners.
The participation rate, which measures those in the labor force and those actively seeking employment, remains at a historically low level of 62.8 percent, 2.9 percentage points below the June 2009 level. Part of this is the effect of boomers retiring (probably about half of the reduction) but a big chunk is due to workers who have not yet been lured back in the labor force.
Income: According to Sentier Research, April 2019 median household income was $64,016, 5.2 percent higher than the median of $60,867 for December 2007, the official start of the Great Recession and 15 percent above the post-recession low point of $55,665 that was not reached until June 2011, two years after the recession had officially ended.
Stocks: On May 29, 2009 the S&P 500 closed at 919. On Friday, the index closed just under Thursday’s all-time closing high of 2950, a return of more than 220 percent.
Fed Funds Rate: In June 2009, the Federal Reserve was maintaining emergency levels for the federal funds rate (the rate on money lent overnight between banks) in order to help boost economic activity. The central bank kept rates at zero until December 2015 and since then, has hiked nine times, a quarter-point at a time, to the current range of 2.25 to 2.50 percent. Although they have not yet taken any action this year, at last week’s Federal Reserve policy meeting, eight of the 17 officials indicated that they were leaning towards cutting interest rates in 2019.
Housing: While stock market indexes bottomed in March 2009, it took the epicenter of the crisis, the housing market, far longer. House prices peaked in 2006, then reached bottom in early 2012. Here’s the good news: the Case-Shiller National Home Price index is at a new all times high, 12.6 percent above the bubble peak. BUT, according to Bill McBride of Calculated Risk, those numbers are just that, numbers. When adjusted for inflation (that is, in real, not nominal terms) “the National index (SA) is still about 7.9 percent below the bubble peak.”
Household Net Worth: Americans have reduced debt and increased asset levels over the past ten years, amounting to a 58 percent rise in household net worth, that amount went disproportionately to those at top of the heap. According to a recent report from the Federal Reserve Bank of St. Louis, financial stability appears to be “concentrated in the hands of those who need it the least.” Additionally, when the analysis drilled down by state and local areas, it found that household financials vary dramatically. “Neighboring ZIP codes, even within the same city, often experience divergent outcomes defying the national trend.”
The St. Louis Fed analysis may explain a new Bankrate survey, which found that “47 million (23 percent) Americans who were adults when the recession started in December 2007 say their overall financial situation is worse now than it was before it hit. Another 1 in 4 say they are doing about the same now as they were prior to the start of the recession, and 51 percent say they are doing better now.”
Can the Expansion Continue? While there will most assuredly be another recession at some point, economists are eager to point to lengthier examples of growth miracles in other countries, like Australia, which is in the midst of its 28th straight year of expansion and others like Canada, the U.K., Spain and Sweden, which clocked in with 15-years, between the early 1990s and 2008.