“I DON’T THINK expansions die of old age,” Janet Yellen, former Federal Reserve Chairman, told economists at a conference in Atlanta on Jan. 4. This theory could soon be put to the test. To date, the economic expansion that began in America in June 2009 has continued uninterrupted for over 120 months (3,654 days to be exact), making it the longest in history. The previous record, according to the National Bureau of Economic Research (NBER), the official U.S. arbiter of recessions, was the ten-year boom that took place between 1991 and 2001.
The economic cycle has been lengthening for some time. Between 1945 and 1981, US economic expansions lasted an average of three years and eight months. Since then, they have lasted for more than eight years. But as they lengthened, they also got weaker. During the ten economic cycles recorded between 1949 and 2007, the economy grew at an annual rate of 4.7% per year, on average. Since 2009, however, growth has only averaged 2.3%. In addition, GDP per capita, a measure of economic growth that eliminates the effects of a growing population, has only grown by 1.5% per year. Over the previous ten cycles, it has grown by an average of 3.3% per year.
There are signs the party is coming to an end. Investment bears indicate an inverted yield curve (when yields on long-term bonds have fallen below those on short-term bonds), historically a definite harbinger of recessions. Trade wars could also trigger a slowdown. Yet professional forecasters surveyed by the Philadelphia Federal Reserve estimate that there is only a one in five chance that a recession will strike next year. They still expect the US economy to grow 1.7% in 12 months.
Of course, recessions are hard to predict; that’s what makes them so disruptive. “As Janet says, expansions don’t die of old age,” Ben Bernanke told conference attendees in January, agreeing with his successor at the Fed. “I like to say they’re murdered instead.”