This period of US economic expansion is now the second longest ever, can it continue?

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By John Manning, International Banker

As April turned into May, the ongoing economic expansion in the United States officially became the second longest on record in the country. The period, which began in June 2009, when the world’s largest economy began to emerge from the Great Recession, saw a recovery that overtook the previous second longest expansion, which occurred between 1961 and 1969. And with the economy appearing to remain in robust shape for the foreseeable future, this current period of sustained growth may well become the longest on record, if it breaks the all-time high reached between 1991 and 2001.

According to a report by the Cushman & Wakefield real estate services company titled “Cycle Watch: US Economic Expansion Reaches Historic Point,” published in late April, the current expansion is certainly the second longest since 1785. As Chief Revathi Greenwood observes from Cushman & Wakefield’s Americas Research Division, “During World War II, the odds were fairly even that in any given year the United States would be in a recession”; but since then, “recessions have become less frequent. While context matters in determining why some extensions last longer than others; one thing is clear: they do not die of old age ”.

Periods of economic expansion in the United States since 1945
Source: http://info.cushmanwakefield.com/l/263412/2018-04-30/62thm?_ga=2.146592756.1334322925.1526960472-1553030267.1526960472

According to most analysts, it is the slow and steady nature of the recovery that has allowed this expansion to achieve such longevity. Declining unemployment levels throughout the decade no doubt helped and is currently at its lowest level in 17 years, while April marked the 91stconsecutive month of job growth in the country, by far the longest on record. The moderate pace of GDP (gross domestic product) growth during the recovery, coupled with largely lukewarm inflation most of the time, also helped the US Federal Reserve to keep interest rates at historically low levels for a period of time. prolonged. In addition, the International Monetary Fund (IMF) recently raised its forecast for economic growth in the United States for this year to 2.9%.

For the current boom to become the longest, the economy will need to continue growing until July 1, 2019. And it just might get there – at 107 months and more, the current economic expansion shows little sign of abating. turn for the worse. A strong labor market and a solid level of consumption should stimulate growth in the medium term; and with the cost of living remaining fairly constant, despite signs of creeping inflation in recent months, economists widely expect this factor, along with recent tax cuts and heavy hiring, to fuel spending households in the future.

That said, the flattening of the US Treasury yield curve has boosted the New York Federal Reserve Index, which tracks the likelihood of a US recession to materialize in the next 12 months. The index is indexed to the spread between 10-year and 3-month Treasury rates and, according to recent figures, rose in April to 11.21%, which is the second highest value since January 2008 and just below the post-peak recession index of 11.46 percent recorded last December. Nevertheless, these figures remain extremely low in a historical context, with an average of 13.3% recorded over the last 60 years, and a record high of 95% observed in the early 1980s.

Additionally, it appears that the global business community expects the US economy to remain strong for some time. A recent report from Zurich Insurance Group, EY (Ernst & Young) and the Atlantic Council found that 71% of 497 CFOs (CFOs) surveyed in 30 countries expect continued improvement in the business environment of the country over the next three years. , while 61% of those surveyed feel “confident or extremely confident” about investing in the United States. Commenting on the results of the report, George Quinn, chief financial officer of Zurich, said the improving short-term economic outlook “seems to prompt CFOs to be extremely optimistic.” But at the same time, “many CFOs operating in the United States have never experienced an economic downturn, and the world is more uncertain due to a number of recent geopolitical events.”

Indeed, not everyone projects a rosy economic image. A JPMorgan Chase survey in April found that 75% of very high net worth investors (UHNWs) expect a recession by 2020. And of those who expect such a recession, 21% predict it will begin. in 2019, while 50% expect it to start in 2020. The study surveyed more than 700 global private clients, those with liquid financial assets exceeding $ 30 million, across Europe and the Middle East. That said, Anthony Collard, head of UK, Ireland and Nordic investments at JP Morgan, said that while these investors have expressed separate concerns, the bank itself does not expect that. that such a grim scenario should occur. “Until we see clear imbalances forming and policy approaches a point where it truly limits economic activity, we lean towards the idea that the cycle will continue to expand.”

Renowned US economist Stephen S. Roach also recently suggested that the fundamentals of the US economy remain weak and points to a myriad of underlying factors that could precipitate a slowdown. Roach observes “a very fine savings cushion”, referring to the country’s net national savings rate, which is the sum total of corporate, household and public sector savings and which was recorded at just 2 , 1% of national income in the third quarter of 2017, well below the 6.3 percent that was on average over the last three decades of the 20ecentury. These weak savings mean that investment in the country’s production capacity will be severely hampered in the future, according to Roach, while legislation signed by the Trump administration that will increase the federal budget deficit by $ 1.5 trillion over the course of the year. the next decade will be “enough, by itself, to push the already low national net savings rate towards zero”.


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