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A MOST DURABLE ECONOMIC


EXPANSION The US economic expansion of the 2010s that commenced in Q3/2009 is now into record territory as the longest US economic expansion ever, eclipsing both the long expansions of the 1990s and the 1960s.


Why has the 2010s economic expansion produced much less economic growth than previous long-lived expansions? Despite the less-than- stellar growth, what made the 2010s economic expansion so durable? Under what conditions might this long-lived expansion come to its demise?


In this research we compare the three longest economic expansions in the 1960s, 1990s, and 2010s to learn some lessons about economic growth. To anticipate the discussion to follow, our main conclusions are as follows.


First, the 2010s expansion failed to produce the cumulative economic growth of past expansions because it faced severe demographic headwinds that constrained labor force growth – the opposite of previous expansions.


Chart 1: US Real Gross Domestic Product


180 160 140 120 100 80 60 40 20 0


0 5 10 15 20 25 30 Number of Quarters of Expansion. Source: CME Group Economics, Federal Reserve Bank of St. Louis FRED Database (GDPC1) 1960’s 1990’s 2010’s


Second, the economic expansion of the 2010s has been so durable because the Federal Reserve (Fed) did not take rates to a super-premium above the rate of inflation as it did in the late 1960s or the end of the 1990s.


And third, economic expansions do not end because of old age; it takes a policy mistake, a debt bubble busted by high interest rates or some other trigger. In this case, debt levels are quite high, yet the Fed has removed the threat of an interest rate policy mistake, so if this expansion meets its demise, the trade war may get most of the blame for disrupting economic growth. For now, however, there may be many more quarters of 2%-territory real GDP growth in its future. Why has the 2010s economic expansion produced much less economic growth than previous long-lived expansions? Despite the less-than-stellar growth, what made the 2010s economic expansion so durable? Under what conditions might this long-lived expansion come to its demise?


In this research we compare the three longest economic expansions in the 1960s, 1990s, and 2010s to learn some lessons about economic growth. To anticipate the discussion to follow, our main conclusions are as follows.


First, the 2010s expansion failed to produce the cumulative economic growth of past expansions because it faced severe demographic headwinds that constrained labor force growth – the opposite of previous expansions.


Second, the economic expansion of the 2010s has been so durable because the Federal Reserve (Fed) did not take rates to a super-premium above the rate of inflation as it did in the late 1960s or the end of the 1990s.


And third, economic expansions do not end because of old age; it takes a policy mistake, a debt bubble busted by high interest rates or some other trigger. In this case, debt levels are quite high, yet the Fed has removed the threat of an interest rate policy mistake, so if this expansion meets its demise, the trade war may get most of the blame for disrupting economic growth. For now, however, there may be many more quarters of 2%-territory real GDP growth in its future.


35 40 45


18 | ADMISI - The Ghost In The Machine | July/August 2019


1st Quarter of Expansion = 100.


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