July 1, 2019
According to the National Bureau of Economic Research (NBER), June 2009 was the last month the U.S. economy was in recession. That means the U.S. economy has now seen its longest expansion in history!
A number of items have contributed to this period of growth. In the depths of the financial crisis, the government took extraordinary steps to restore confidence in the financial sector, protect major employers like the auto companies, and restart the economy. After a period, consumer confidence returned and corporate balance sheets firmed up, and the stock market boomed as the Fed kept rates low. In the past three years, deregulation and large tax cuts have contributed to growth.
But what really sets this economic recovery apart from those in the past is pace. Rather than coming roaring back in the wake of the Great Recession, growth was more gradual, more measured. As Mark Zandi, chief economist of Moody’s Analytics put it, “We’ve been jogging, not sprinting.” As a result, this economic expansion has not given rise to some of the excesses of past expansions, such as the housing bubble of the 2000s and tech craze in the 1990s.
Some signs point to yes. The Commerce Department released numbers this past Thursday showing that GDP growth increased at a 3.1% annualized rate in the first quarter. That indicates that while the expansion may be getting long in the tooth, it isn’t dead yet.
There are a couple of things that look good from an economic perspective. Consumer balance sheets continue to be healthy, and consumer confidence remains high despite a dip last month. While the Great Recession was preceded by a sharp rise in household debt – large mortgages and high credit card balances, among others – Americans have embraced better financial habits. Household liabilities as a share of net worth are at their lowest level since 1985, according to RBC. And we are saving more. Americans saved 6.2% of their disposable income in April, compared with a range of 2.7% to about 4% in the mid-2000s.
On top of this, the labor market remains tight and worker productivity is on the rise. Both of these contribute to continued wage growth, as companies pay to find and retain good employees. Inflation remains low, and the Fed continues to be very dovish when it comes to interest rates. All of these indicate growth could continue.
There are a few threats to this historic run, and the U.S.-China trade war is probably the biggest one. The tariff increases have already slowed economic growth. But if the Trump administration follows through with its threat to impose tariffs on the remaining $300 billion worth of goods we import from China, the pain could be severe. The markets will react poorly, businesses and consumers will feel the pinch, and it could very well push the economy into recession.
There are some other signs the economy is slowing. The manufacturing sector has also been showing signs of weakness lately. In May, the Institute for Supply Management’s manufacturing index fell to 52.1 from 52.8 a month earlier. While any number over 50 suggests manufacturing businesses are still expanding, the measure was the lowest since President Trump took office. We have also seen corporate profits margins fall. Wall Street analysts expect corporate earnings to decline by 2.6% for the second quarter and 0.3% for the third quarter, according to CNBC. Wage growth and costs associated with trade tensions have contributed to this. Finally, the housing market is slowing down. Last week the S&P CoreLogic Case-Shiller index showed U.S. home prices grew 3.5% year over year in April, the slowest growth rate in seven years.
That is a great question! Certainly, many Americans have reaped benefits from this economic recovery. The unemployment rate is at a 50 year low and consumer confidence is high. As I mentioned earlier, household finances are in better shape than they were 10 years ago.
But much like that of the economy, the financial recovery of many Americans has been gradual. While year over year wage growth has ranged between 2% and 3% since the recovery began, it has remained lower than the 4% rate we saw in the 1990s. Income inequality is worsening. And economic anxiety remains. In a survey by Bankrate, 23% of respondents said they were worse off than they were before the economy collapsed. Many Americans, particularly Millennials, are hesitant to put their money in the stock market due to their concerns about another meltdown.
So while we recognized the longest economic recovery in our history and hope it continues, it’s important to remember that scars from the Great Recession persist.
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