In Rare Company
The current U.S. economic expansion is now the second longest expansion in history, registering over 106 months in length. The only expansion left to surpass is the 1990s boom, which lasted 120 months. Juxtaposed against this extended rally are the many Americans who are still struggling to get by, according to financial surveys. A growing percentage of Americans have little to no savings and are woefully unprepared for retirement. In the end, whether we remember the 2010s as a period of extended economic growth or a time of struggle may depend on who you ask.
Despite the growth, there are indeed some identifiable reasons why many Americans feel they are not much better off than they were years ago. First, growth has been very subdued throughout much of the expansion, only averaging 2.2% per year. This anemic growth rate makes it the slowest post-war expansion on record. Even more, the largest gains have gone exclusively to the wealthy. Why? Asset values have increased dramatically (i.e. stocks, real estate), while workers’ wages have remained mostly stagnant. This is part of the reason this expansion has been one of the most unloved in history.
Despite these factors, relatively slow growth may prove to be a positive thing. We have yet to see the irrational exuberance and excessive consumer debt buildup that one would expect this long into an expansion. Without that exuberance, the expansion has the potential to continue. Expansions don’t just die of old age, they usually die because economic growth runs higher than conditions warrant. The excesses then lead to contraction.
The longer the expansion goes the more economic records we will compile. As an example, last month we saw something in the employment data that has never happened before: total job openings surpassed the amount of unemployed people looking for work. It is only a matter of time before this starts to have a big impact on wage growth. Tried to hire a contractor recently? If you can find one, they come with waitlists and drastically higher prices. Employers are competing for employees, which not only means higher wages, but increased spending on training programs and increased relocation expenses. Workers might then feel better about this recovery, but these increased costs will eventually bubble up to broader inflation measures, which is one of the reasons we see price pressures starting to pick up.
Employment is just one area where we are pushing the limits. Other parts of the economy are beginning to feel stretched as well. However, it could take some time before this presents real problems, and a run at the longest expansion in history is certainly possible. Look no further than our Economic Dashboard this month. All six charts are green, meaning things are good. This could certainly change within the next year, but the odds of the U.S. economy falling into recession are small. More likely, the path will be stronger growth, a buildup of excesses, and then a slowdown. In the meantime, we remain vigilant that at any point the story can change.
If you would like to see more data and charts about the economy and various financial markets, please see our Monthly Insights book, published online at AllegiantPA.com.
Benjamin W. Jones, CFP?, AIF?
CERTIFIED FINANCIAL PLANNER?
Chief Investment Officer, Principal
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