Breaking Records – July 1, 2019
It’s summertime and we’re heading into the second half of the year. Time really does fly!
But it’s a milestone for the economy. The economic expansion that began in July 2009 is 10 years old. It’s run exactly 120 months, tying the longest expansion on record (NBER). Barring an unforeseen economic shock, a new record is within reach.
The next question one may ask: Are we on the cusp of a recession? Well, expansions don’t die of old age. Economic forces create recessions.
So, what has historically caused a recession? Leading causes include—
- The Fed hikes rates in response to inflation (early 1980s), or a Fed policy mistake.
- An asset bubble bursts (2001 and 2007).
- A credit squeeze cuts off lending to the economy (short 1980 recession).
- An unexpected shock occurs (the 9-11 attack exacerbated the 2001 recession; same can be said of the spike in oil prices during the 1974, 1990 recessions).
Today, the Fed appears to have sidestepped a policy mistake, we’re not seeing significant excesses in much of the economy, and credit conditions are not tight.
One potential risk, however, is trade. Trade has never caused a recession in modern history, but we don’t have any precedents to model how business confidence might impact business spending or hiring.
Tortoise and the hare
One reason given for today’s longevity: it’s been a subpar economic expansion. You see, speculative excesses have not had a chance to build up in the economy. And, the Fed was slow to start hiking interest rates.
Yet, an expanding economy, which supports profit growth, and low interest rates have been powerful market tailwinds over the last 10 years.
“There are good reasons to think the current expansion could last at least another 10 years—under the right circumstances,” per a recent piece in Barron’s. Yes, under the right circumstances and with a little luck, we may be having this conversation again in 2029.
Created 2019-07-01 14:32:41