Happy birthday to America’s longest-ever economic expansion. June marked 10 years of growth, matching 1991–2001 as the longest expansion in U.S. history. And the good news continues. Third-quarter numbers will set new records.
But rather than partying, most pundits are preparing eulogies. This expansion is too old, they fret. Wrong! Economic cycles don’t die of old age. The more folks fear that myth, the more I want to party.
Whatever finally kills this 120-month upswing, it won’t be the fact that it’s more than twice as old as the 58-month average for U.S. expansions since World War II. To understand this, think globally.
Australia finished its 27th year of uninterrupted growth in 2018. It’s still running strong. Britain grew from 1992–2008 – a 16-year-long streak. That one, of course, got clobbered by the 2008-09 financial crisis.
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So, if age didn’t kill these longer expansions, why should it doom America’s now?
People think about many phenomena as they do about biological life, where relative old age within any species eventually kills – technically called senescence. Senescence is irrelevant to economies. Expansions die from multi-trillion-dollar negative shocks. Historically, central banks, like our Federal Reserve, were often the culprit. They have often misread the tea leaves, feared an inflationary overheated reality and tightened evermore while the economy weakened. While I don’t think rate cuts are necessary now, that central banks globally are starting to cut shows they don’t fear overheating now.
Nor should they. This expansion has averaged quarterly GDP growth in the low 2% annual range. Sluggish! The postwar average pre-2009 was 3.3% including recessions. Until last August, wage growth hit 3% year over year in just one month this entire cycle. Fed data show workers with only a high school degree (or less) fared worse, with wages falling 4.2% in total from 2007 to 2013. They didn’t regain pre-recession levels until 2017. Nearly any economic metric you examine –inflation, loan and money supply growth, industrial output, consumer spending – shows slow growth.
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The cause? The Federal Reserve and its early long executed “quantitative easing”—bond buying it wrongly called “stimulus.” Why? That bond buying lowered long-term interest rates. Fed officials thought that would make for eager borrowers. But banks must supply those loans. Banks fund long-term lending by borrowing at short-term rates. Hence, that spread, between short and long-term rates – the infamous “yield curve” spread – is a proxy for new lending’s profitability. The Fed’s lowering long rates when short-term rates were near zero pinched the profitability of lending. So banks lent begrudgingly. Businesses struggled to get credit. The quantity of money didn’t grow, keeping inflation low and economic growth dragging. The Fed’s quantitative Quaalude turned an economic “boom” into a low, long, joyless trudge toward growth.
This longest, slowest expansion has another accolade: it’s history’s most hated. Throughout, pundits have dissed growth. Early on it was normal freaked-out skepticism, folks fearing a depression, double-dip or Japanese-style lost decade. Those fears never fully vanished. Every wiggly growth slowdown – typical variations within any economic cycle – spur recession fear to this day. See current worries over slowing manufacturing data. Pundits claim this wobbly old economic upswing is dying before their eyes.
As I detailed recently, other people’s fears are your friend. They keep euphoria at bay and lower expectations. That makes positive surprise easier to attain, buoying stocks. That also explains why history’s longest bull market runs parallel to this long joyless expansion– twin long, slow ascents. Stocks’ 16% annualized return this time lags bull markets’ 21% historical average.
Forget fears of age killing this expansion. As long as folks hate this still-growing U.S. economy, stocks have room to climb.
Ken Fisher is founder and executive chairman of Fisher Investments, author of 11 books, four of which were New York Times bestsellers, and is No. 200 on the Forbes 400 list of richest Americans. Follow him on Twitter: @KennethLFisher
The views and opinions expressed in this column are the author’s and do not necessarily reflect those of USA TODAY.