INDIANAPOLIS, Ind. – The U.S. economy continues to grow, and is now the second longest expansion in history.
And William Strauss, senior economist with the Federal Reserve Bank of Chicago, said he would not be surprised if at this time next year it has become the longest-running economic expansion in U.S history. Speaking at the FTR Transportation Conference this morning, Strauss said the economy is growing at “a moderate and steady” pace rather than “jackrabbiting ahead in certain sectors, which can cause some concern.”
He labeled it “the tortoise recovery,” and noted it has so far delivered just half the growth seen in previous economic recoveries. Despite the slow growth, it continues to grow above trend, which is about 2%.
The National Activity Index, a measure of the country’s activity, is indicating that economic growth could slow to a more trend-like pace, but it’s not yet showing signs a recession is coming, Strauss explained. The stock market is at record highs, which lifts consumer sentiment.
“Given the duration, and the fact expansions have lasted on average five years, some people will foolishly say we’re due for a recession,” Strauss said. “But no matter what I tell you today, and no matter how optimistic I may leave you, you’re not going to go back to your business, put your feet on the desk and say ‘I’ve made enough money. I can just chill.’ That’s not how economies operate.”
It will take some kind of “shock to the system” to cause the economy to pull back, Strauss noted, such as a terrorist attack, an imbalance in the housing industry impacting the financial sector, a war, or bad monetary policy. A survey of professional forecasters recently found that the risk of recession is very low. And with growth well above 2%, even a shock to the system that knocks GDP down by 2% still allows for economic growth.
Leading economic indicators tend to move lower before a recession, but a composite index of 10 leading indicators has continued to move higher through July.
And the job market remains extremely strong. This year there have been four months when the unemployment rate was below 4%; prior to that, there were only four occurrences when the unemployment rate was below 4% dating back to the 1970s.
One area of disappointment has been productivity.
“Productivity growth has been abysmal over the expansion,” Strauss said.
Compared to other economies, the U.S. economy is the strongest in the world. The Manufacturers Purchasing Index in both the U.S. and Canada is doing well and exceeding global growth. The auto industry slowed last year, but then hurricanes in the southern states gave the sector a shot in the arm as insurers paid customers to replace damaged vehicles.
In conclusion, Strauss said “It looks like the economy, because of the balance we appear to be in, has an opportunity to continue growing. I think we are looking at a potential record expansion.”
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