The return to the recession that hit in 2007 was chaotic: sluggish growth, declining productivity, stubbornly high unemployment rates. But there is one aspect of this recovery that can be redemptive: it has been unusually long.
The arrival of March means that the current economic expansion has now entered its 93rd month, surpassing the 92-month expansion of the 1980s, to become the third longest in US history.
The financial crisis was such a severe earthquake that crippling aftershocks seemed inevitable. No such rumbling occurred. Is it because low growth lasts longer? Or is it a sign that something more fundamental has changed in the US economy over the past few decades?
To rank expansions, we turn to the timeline of the National Bureau of Economic Research, the arbiter of the start and end of US recessions. In records dating back to before the Civil War, the United States experienced only two longer periods of growth: the 1960s and the 1990s.
A few quick reminders: the NBER definition of recession is not intuitive for everyone. The NBER looks for turning points, where the economy stops contracting or when unemployment stops rising. Even after this turning point, unemployment may remain high for years.
Imagine if unemployment rose to 25% and then started to fall a few percentage points per year. The NBER would declare the recession over once this rate drops, even if the level of unemployment would remain very high for years. This is the age-old definition that has defined recessions since 1854. And it is by this more than 150-year-old criterion that the current boom has lasted an unusually long duration.
A detailed explanation of why the NBER chose June 2009 as the start of the expansion is available here. Their case for the date is not widely disputed. The stock market typically turns ahead of the economy and has been in an equally durable bull market since March 2009.
It’s a very long time ago. Throughout US history, the gap between the end of one recession and the start of the next has averaged just under five years. If this economy makes it through next summer, it will be the second longest in US history. By mid-2019, it would become the longest on record. The equity bull market is already the second longest in history.
Is the duration of the extension redemptive? It’s definitely better than having another meltdown. But it was an unusually severe recession (the longest since the Great Depression and, in many ways, the worst since then) and the slow recovery has left many people in dire straits for far too long. , resulting in significant economic scars. Some economists think that one of the reasons for the duration of this expansion could well be this weakness. Booming economies accumulate excesses; it is difficult for a lukewarm economy to reach the point where there is so much to lose.
But that doesn’t seem to be the whole story.
A quick look at history shows that US expansions seem to be getting longer. Prior to the 1960s, the longest periods of growth were almost all in times of war, and therefore in times of labor shortages and enormous demand for resources. Apart from war mobilization, the economy is subject to abrupt agricultural and industrial cycles. Repeated banking crises haven’t helped either.
Over time, however, recessions have become less frequent and hence expansions longer. This could be explained, in part, by the abandonment of an industrial economy. Factories have cycles of ramping up production, overproduction, and then downsizing. Hospitals do not have such cycles. So, as more people work in industries that are more like healthcare and less like manufacturing, the economy can be less cyclical.
Prior to the 2007-2009 recession, economists referred to the phenomenon of protracted expansions and mild recessions as “the great moderation”. The idea of ’moderation’, however, was widely scoffed at after the severity of the financial crisis. There is nothing moderate about the collapse of a national banking system, the bursting of a housing bubble, millions of homes foreclosed and millions of workers thrown out of work.
It’s clear now that recessions still happen and can be incredibly severe. Yet even if another serious crisis hits soon, it will still end a very long boom. The longer it enters the record books, the clearer it becomes that certain qualities of the “Great Moderation” have survived.
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