Same Old, Same Old: The Weak Expansion Continues

J: Three years ago, at the Q&A session after a presentation at the NABE policy conference*, former Federal Reserve Board Chairman Alan Greenspan (also a former NABE president) was asked for his outlook for the US economy for the next two years. His response was, “same old, same old.”

Even though he was speaking during a quarter in which we now know that real GDP fell at a seasonally adjusted annual rate of 0.9 percent (remember, all quarterly numbers are seasonally adjusted at annual rates in this blog unless we say otherwise), his statement was remarkably prescient. [L: Economists would call that a good forecast.] In their GDP release of July 28, which contained revised data from 2014 through the first quarter of 2017, the BEA confirmed that this is not only the slowest expansion among all 12 since the end of World War II. It is actually the weakest since the late 19th century.

On page 5 of the release, the BEA states, “For the period of economic expansion from the second quarter of 2009 to the first quarter of 2017, real GDP increased at an average annual rate of 2.1 percent [L: pay attention to this number, you will need it later], the same as previously published.” All of the first nine expansions since 1945 had real GDP growth of 4.0 percent of more, led by the phenomenal 7.6 percent average of the May 1954 to August 1957 expansion. (The Wall Street Journal article we link to below is missing the first one, October 1945 to November 1948.)

Real GDP growth was lower in the most recent 3 expansions than the other nine post-World War II expansions. Real GDP growth averaged 3.6 percent in the March 1991 to March 2001 expansion and 2.8 percent in the November 2001 to December 2007 one. Now we're at 2.1 percent in this expansion. [L: Remember?]

The first bit of good news about these new GDP data is that the US economy is still growing. The current expansion, which entered its ninth year (97th month) in July, is the third-longest one in the annals of the business cycle history compiled by the National Bureau of Economic Research (NBER). This chronology begins with a trough in December 1854.

The longest expansion so far is the ten-year (120 months) one from March 1991 to March 2001. The second-longest is the 106-month long one from February 1961 to December 1969. We’ll tie that one in April 2018 and move fully into second place the following month. We’ll see this one move into a first place tie in June 2019 and become the record holder in July that year.

The Wall Street Journal has some great charts of these cyclical comparisons. You might be tempted to say, “Slow and steady wins the race,” but that would not be accurate.

The chart below shows real GDP quarterly growth has not been close to steady. For one thing, this is the first expansion since the October 1945 to November 1948 one to have two quarters in which real GDP declined. These were the first quarters of 2011 (-1.5 percent) and 2014 (just revised from -1.2 to -0.9 percent). The two strongest quarters have been the third quarter of 2014 (5.2 percent) and the fourth quarter of 2011 (4.6 percent).

The next chart shows the year-over-year changes in real GDP since the beginning of quarterly data. You can see the general slowing from the early postwar years until now Note that the second quarter of 2017 was precisely 2.1 percent above the year earlier. [L: Remember that number from the third paragraph?]