Markets are not only celebrating a great 2019, an amazing start to 2020, but also a record breaking economic expansion, currently reaching into its 127th month. Additionally, the U.S. toasted to its first decade in history without a recession, ending the 2010’s with many reasons to celebrate.1
This historical expansion, as of the end of 2019, reached an astonishing 6-months longer than the historical expansion of the 90s. After an impressive 120-month run, the economic expansion of the 90s concluded with the dot-com crash. While the current expansion may be extending past the previous run, it has also the weakest expansion in history, as measured by GDP growth.
What does this mean? Consider that since 1945, the median GDP growth has been 4.36% per year during expansions. (See chart below which shows expansion duration by month and annual GDP growth during those cycles.) This latest, and longest, has been merely 2.3%.
One argument I have heard regarding why we are in the longest expansion cycle is that being below mean can make it last longer, but the data does not really give any conclusive evidence as to the why. It sounds plausible that slow and steady can go longer, but there is always more below the surface influencing expansion cycles. A more reasonable explanation may be the unusually accommodative nature of the Fed with easy monetary policy.
Whatever the reason for the extended expansion, we are not yet seeing imminent signs of recession on the horizon. With economics, data can come in to change that expectation and certainly geopolitical risks. And of course the upcoming presidential election may have some influence our economic trajectory this year.
Absent any considerably nasty surprises, the solid beginning that we have enjoyed in 2020 is likely to persist for at least a few more months, but navigating through this year will take some patience and careful analysis of data. The 2010s were good to market investors and we look forward to a new and exciting decade to come!
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