U.S. Expansion May Be Nowhere Near an End

(Bloomberg Opinion) -- The current U.S. economic expansion that began in 2009 will celebrate its 10th anniversary in June. The following month, it will become the longest period of sustained U.S. growth on record, according to the National Bureau of Economic Research, surpassing the 10-year-long expansion from March 1991 to March 2001.

The length of the current growth spate is raising questions among some market-watchers about just how much further it can go on, and whether the U.S. is due for a recession. My Bloomberg News colleague Steve Matthews asked Federal Reserve Chair Jerome Powell that very question during the central bank’s press briefing on Wednesday. Powell seemed unconcerned, saying he saw the U.S. “on a good path for this year,” citing healthy growth, a strong labor market and low inflation.

The topic also came up when former Fed Chairman Ben Bernanke and former U.S. Treasury Secretaries Hank Paulson and Timothy Geithner appeared on CNN’s “Fareed Zakaria GPS” on Sunday. They were there to promote their new book, “Firefighting: The Financial Crisis and Its Lessons,” a meditation on the causes of the 2008 financial crisis and the response to it, but there was little chance of dodging the R-word. Zakaria asked Geithner about it, who said the foundations of the current period “are more stable than is true for many past expansions,” adding that it “could go on.”

There’s good reason to share Powell’s and Geithner’s calm. When observing the current expansion solely in terms of duration, it does seem as if it’s running long. But when comparing current growth to that of previous expansions, an imminent recession no longer seems inevitable.

Take a look at the following table, which shows the annualized and total real GDP growth during the previous 11 expansions, including the current one, using the longest available quarterly data from the U.S. Bureau of Economic Analysis and approximating as closely as possible the start and end dates of previous expansions as determined by NBER.

U.S. Expansion May Be Nowhere Near an End

Two things immediately jump out. The first is that the length of expansions, with few exceptions, has increased dramatically over the last seven decades. The second is that real annualized GDP growth has gradually declined over the same time. With each successive expansion, in other words, it’s taking the economy longer to produce the same amount of total growth.

That makes sense. Large economies grow more slowly, and more steadily, than smaller ones. That’s evident when comparing the growth of developed economies such as Germany or Japan — or even the U.S. — to developing ones such as India. It’s easy to forget that U.S. GDP was roughly $300 billion in 1950, which is less than the GDP of 22 states in 2017 and just 1.5 percent of American output in 2018.

So while the current expansion will soon be the longest on record, it ranks fifth in total growth among the 11 expansions since 1950. At its current annualized growth rate, it would take another six years to match the total growth attained during the 10-year expansion from March 1991 to March 2001 and another nine years to match that of the period from February 1961 to December 1969. By those lights, the duration of the current expansion seems less worrisome.

That doesn’t mean slow and steady growth is satisfying — least of all for investors. It’s unlikely to support further outsize gains from U.S. stocks favored by bulls, or heart-stopping declines prized by bears. But after the twin dot-com and housing bubbles of the last two decades, and their ruinous aftermaths, slow and steady is nice for a change. Now if only we had the good sense to enjoy it.

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

Nir Kaissar is a Bloomberg Opinion columnist covering the markets. He is the founder of Unison Advisors, an asset management firm. He has worked as a lawyer at Sullivan & Cromwell and a consultant at Ernst & Young.

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