The US has the longest growth period in its history

The US has the longest growth period in its history

The economic expansion in the United States celebrates its tenth anniversary and in July it will exceed the previous record of 120 consecutive months of growth. The great period of expansion was prior to the dotcom crisis in 2001, during the presidency of Bill Clinton. The fruits of the current recovery are clear: the unemployment rate is the lowest in half a century, wages rise, housing is worth more than before the Great Recession, inflation is low and confidence remains strong. The names of Barack Obama and Donald Trump will remain like this forever in economic history. But this recovery period, the longest in US history, is also characterized by the fact that it is slower and uneven.

The US Office of Economic Research accounts for 33 growth cycles since 1854. These periods of expansion lasted between 10 and 120 months. Only twice exceeded 100 consecutive months of growth. Alan Blinder, an economist at Princeton University, says the expansions do not die by age but because something ends them. Experts often point to the Federal Reserve (Fed) as the main culprit of the end of the cycles for their efforts to fight inflation.

But the end of the boom periods is also often attributed to a spiral in the price of oil or to a collapse of Wall Street, although in the latter case the stress in the financial markets is usually parallel to other calamities. But the main spike that triggers a crisis is usually the fall in consumption and the loss of confidence. To know about the growth in the ongoing period read this


Full employment

The labor market is where the greatest progress is observed. The private sector created more than 21 million jobs during the recovery, after chaining 110 consecutive months of hiring. The occupation is now 9% higher than before the recession. Unemployment fell in April to 3.6% and for three years there is a situation of full employment. The big problem that companies now face is to find the skilled workforce they need to fill 7.5 million vacancies.

It is another example of the great progress made since the Great Recession. When Obama took the reins of the White House, 700,000 jobs were destroyed per month. The job loss was drastically reduced thanks to the fiscal stimulus programs that were activated and the Fed's aggressive action. Most of the recovery came under Obama's presidency and the improvement continues with Trump.

But although unemployment is at a minimum and the recovery is the longest, it is also warmer when compared to the cycles of the golden years that followed the post-World War II period until 1972. At that time the growth provided a substantial improvement in the quality of life, something very different from what is happening today. Then the increase in salaries was much greater.

Salaries have also risen since 2010, but the improvement is concentrated in higher incomes, which is raising inequality. If inflation is taken into account, salaries in real dollars hardly improved, as Pew Research points out. "The purchasing power is the same as four decades ago," they point out. Before the crisis, wages grew by 4% on average per year. In this expansion, the rise does not reach 3%. Economists point out that with an unemployment rate as low as the current one, salaries should grow much more.

The economic expansion during the last decade is also characterized by being below the pre-crisis potential. Since June 2009, when the recovery began, the US has grown at an average annual rate of 2.3%. It accelerated to 3.1% in the first quarter of 2019, but the forecast is that it will soften. It's not just that performance is weaker. It is also more unequal.

The last crisis was the deepest since the Great Depression and caused a large hole that cost a lot to get out of. The trigger was a real estate bubble that exploded in the summer of 2006. The price decline lasted until 2012 and real estate depreciated 30%. The crash thus took a bite on the income of families and millions of families lost their homes. That affected consumption. But prices are now 15% above the pre-crisis high.

BMO Capital economists believe that the combination of sustained growth, employment growth, inflation contained at 1.8% and low-interest rates are "as close as possible to nirvana." For that cocktail, Trump says that the United States is the envy of everyone. "It is the best economy in the history of America," he proclaims.

The Republican attributes current growth to his economic policies, in particular, to tax cuts, deregulation and trade protectionism. GDP expands but not at the rate of 4% that it promised as a candidate or above 3% of its budget plan. He blames it on rising interest rates. "We have the potential to climb like a rocket," he said a month ago.

But things don't look so good. The economy shows signs of weakness due to the poor improvement in productivity and the effects of hatching of digital platforms in traditional businesses. Cumberland Advisors analysts point out that Trump and Powell have little room to make mistakes with their economic policy decisions. Those of Deutsche Bank believes that the current one is the best performance that the US economy can have and "the risk is greater." "It is no longer enough to say that things are going well," they conclude.

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