How Long Can This Economic Expansion Continue?
Investors often compare their portfolios to market indices as a means of measuring performance.
However, this may not be a good idea.
As of the end of June, our economic expansion is eight years old. Having marked an end to the great recession in June of 2009, it’s also the third-longest economic expansion since the end of World War II, according to the folks at the National Bureau of Economic Research.
These are the folks that make the calls on expansions, recoveries, and recessions with data compiled from sales, income, employment, industrial production, and more.
There have been 12 similar economic recoveries since WWII and there have only been two of them longer than the one we are currently in. One was in 1961 and the other was in 1991. The shortest expansion we’ve had lasted only 12 months in 1980. It was attributed to a rise in rates that was too rapid to curb years of high inflation.
Now, you might be asking yourself things such as: “What does this mean to me?” or “When is the next recession coming?” I’ve got some information to help out.
Bear markets historically correlate closely with recessions and expansions do eventually come to an end, but they don’t die of old age. What leads to the end of an economic expansion are typically excesses in our economy. The tech boom of the 90’s, the housing boom of the last decade, and the Fed raising rates too fast too quickly are all examples of these excesses.
One of the hallmarks of our current expansion is its slow, monotonous pace. If you haven’t experienced any benefits of this current expansion, there is still a silver lining for you. Since things have been so boring, I believe there has not been that euphoria of economic activity that leads to excesses in the economy. It has also made the Fed quite cautious to raise interest rates.
My crystal ball gets fuzzy right around when the market opens each day, so I’m not going to give you any outright predictions. However, I will say that most of the leading economic indicators out there appear to point to a very low probability of a recession any time soon.
If you have any questions for me, don’t hesitate to give me a call or send me an email. I would be glad to assist you.
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