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Opinion: 10 years of economic expansion – how long can it run?

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The longest economic expansion in U.S. history – 120 months and counting – became official this week.

Most working adults today are likely to have some recollection of when the U.S. economy finally turned around after the Great Recession ended in 2009. That downturn was 60% deeper than our worst ever on record, and it was the longest the country had endured since World War II.

Few have forgotten the sordid financial drama that unfolded in 2009: automotive giants Chrysler and GM each filed for bankruptcy protection; unemployment soared to 10%, the highest since June of 1983; and a financier named Bernard Madoff was sentenced to 150 years in prison for one of the most audacious Ponzi schemes ever conceived.

By summer, the hemorrhaging had begun to stop. On June 1, the Dow Jones Industrial Averageclosed at 8,721.44, and the Standard & Poor’s 500 finished the day at 926.12. The next 10 years would see the Dow and the S&P climb by more than 18,000 points and 2,000 points, respectively. 

We’ve been suggesting for some time we would likely log the longest economic expansion on record, a title previously held by the 10-year period bordered by the first Iraq war and the internet bubble. Still, we think the economic outlook is positive, with quite a bit of runway remaining.

There are clearly headwinds. Most notably, the tariff situation with China, Mexico and other nations is still highly volatile. By most accounts, the impact of these tariffs isn’t sizeable enough to push us toward recession. Psychologically, however, there's still a lot to be dealt with, and the longer the trade war persists the bigger the impact on economic growth and business confidence. All parties are posturing that they’re playing the long game and won’t be pressured into a deal. And, of course, we’re always only one event away from turbulence in the Middle East, which could also negatively impact global commerce.

Fortunately, we’re still blessed with benign inflation, accommodative central bank policy, high global demand for bonds that’s keeping longer interest rates extraordinarily low, modestly increasing domestic wages and an exceptionally tight labor market.

We believe inflation will remain range-bound due to slowing global growth and softer commodity prices. Certainly, falling oil prices, a slowing in import prices and other transitory factors helped to keep inflation low in 2018, and these same factors have helped to contain inflation early in 2019. While average hourly earnings are expected to gradually push core consumer price inflation up over the next several quarters, intermediate- to long-term inflation expectations still remain well-anchored near 2% on a year-over-year basis.

The Federal Reserve’s rate-tightening policy is likely to do an about-face. After raising interest rates nine times beginning in December 2016, futures traders are implying the probability of a rate cut at the Fed’s July 31 meeting at nearly 100%. We could realistically see two rate cuts by the Federal Open Market Committee before year’s end.

Accommodation by many of the world’s central banks has been significant. China has employed dozens of accommodative policies beyond simply lowering interest rates. The European Central Bank, in trying to stave off near-recessionary conditions in France, Germany and Italy, is talking about extending quantitative easing. And, of course, Japan has had a zero-interest-rate policy in place for quite some time.

Despite a recent and modest weakening in jobs growth, the U.S. labor market continues to be exceptionally strong. Jobless claims and headline unemployment have been bouncing along at 50-year lows. In 2018, the economy added more than 200,000 jobs per month. 2019’s recent softening has been partially attributable to heavy rains and flooding in the Midwest, and the resulting hit to the agricultural sector. Wage growth, too, remains lower than desired, although vastly improved from its lowest levels just a decade ago. Today, average hourly earnings are currently growing at better than 3% per year.

So despite officially entering the longest economic expansion in U.S. history, we continue to be optimistic of a runway for continued growth. The waning boost from the recent tax cuts has been cushioned by continued low inflation and highly accommodative central bank policy, tailwinds which are indeed present across most of the world’s developed and emerging economies. Only time will tell whether we have continued months or years of economic expansion ahead of us.

Drew Spencer is a vice president and portfolio manager for Commerce Trust Co. in Springfield. He can be reached at


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