A Milestone for the Economic Expansion

This month the current business-cycle expansion, which started in June 2009, has reached the 73-month mark. This makes it equal in length to the previous expansion, which lasted from November 2001 to December 2007. Since there are no signs of an imminent recession, it is a good bet that the current expansion will last more than 73 months. This will make it, so far, the fourth longest expansion since the end of World War II.

The three business-cycle expansions that lasted longer than the current one occurred from March 1991 to March 2001 (120 months); November 1982 to July 1990 (92 months); and February 1961 to December 1969 (106 months).

But it is interesting to note that six years (or 73 months) into an expansion, the economy was generally doing better in the past business cycles than it is doing now (see table).

The unemployment rate, at 5.3 percent, is higher today than it was at the same point in most other similarly long expansions. Since the beginning of the expansion, the economy has not added as many jobs, nor has it increased output by as much as it did in the earlier cycles.

And earnings, measured as weekly earnings of production and nonsupervisory workers, are not growing as quickly as they had been in the past.

The fact that the economy today is not growing quite as robustly as in the similarly-long expansions in the past may indicate one of two things.

One possibility is that today the economy is far from employing all of its available resources. With a lot of resource slack, there is no pressure for incomes to rise. The observed slow growth in earnings, coupled with more slack in the labor market, is consistent with this view.  If this is indeed the case, it would imply that the next recession will not happen for years, since we have some distance to go before the economy starts overheating and risking a recession.

The other possibility is less rosy. There may have been a structural change in the economy that moved it to a path of lower long-term growth. Such a change can be driven by demographics,  technological changes, or even policies that significantly affect the incentives for work, saving and investing. If so, the economy may hit its limits without ever getting to that very high pace of growth typically seen at the peak of other business-cycle expansions. Thus, the next recession may arrive sooner, without the economy every getting to a “boom” period.

The economic profession has no consensus as to which of these possibilities describes our current situation, making it impossible to predict the end of the expansion far in advance. The best we can do is to use the available data to look into the near future, a span of a few months to a year. So far, AIER’s model of statistical indicators of business-cycle conditions forecasts no recession in the immediate future.  Beyond that, the future is unknown.

Comparing the postwar expansions lasting six years or more:

Expansion dates

Date: Six years into the expansion

At 6-year mark in each expansion

Time until the onset of the next recession

Unemp.  rate

Jobs
(percent change since start of expansion)

Real GDP
(percent change since start of expansion)

Weekly Earnings (average percent change during last 12 months)

Jun 2009-continues

June 2015

5.3%

8.3%

13.5%

2.3%

unknown

Nov 2001-Dec 2007

Nov 2007

4.7%

5.3%

18.0%

4.0%

none

Mar 1991-Mar 2001

March 1997

5.2%

12.3%

22.1%

3.8%

48 months

Nov 1982-Jul 1990

Nov 1988

5.3%

20.1%

32.6%

2.8%

20 months

Feb 1961-Dec 1969

Feb 1967

3.8%

22.2%

39.4%

3.5%

34 months

Source: Bureau of Labor Statistics, Bureau of Economic Analysis

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