US economic expansion: history in the making

US economic expansion: history in the making

This July, we’ll be witnessing history in the making as the current US economic expansion is poised to become the longest running expansion since WWII. For that matter, it’s about to become the longest on record.

The bull market that began in 2009 is not the best performing since WWII. That title still resides with the long-running bull market of the 1990s. But it is the longest running since WWII (as measured by the S&P 500 Index).

According to the US National Bureau of Economic Research, which is considered the official arbiter of recessions and economic expansions, the current expansion began in July 2009. It has run exactly 10 years, or 120 months, matching the 1990s expansion–see Table 1.

Table 1: Economic Scorecard

Expansions Length in Months
July 2009 -? 120
Mar 1991 – Mar 2001 120
Feb 1961 – Dec 1969 106
Nov 1982 – Jul 1990 92
Nov 2001 – Dec 2007 73
  Average 64
Mar 1975 – Jan 1980 58
Oct 1949  – Jul 1953 45
May 1954 – Aug 1957 39
Oct 1945 –  Nov 1948 37
Nov 1970 – Nov 1973 36
Apr 1958  – Apr 1960 24
Jul 1980  –  Jul 1981 12

Source: NBER thru June 2019

The slowest economic recovery since WWII

Barring an unforeseen event, the current period is headed for the record books.

While the economic recovery is about to enter a record-setting phase, it has been the slowest since at least WWII, according to data from the St. Louis Federal Reserve.

For example, starting in the second quarter of 1996, U.S. gross domestic product, the broadest measure of economic growth, exceeded an annualized pace of 3% for 14 of 15 quarters. It exceeded 4% in nine of those quarters.

Yet, economic booms and long-running expansions can encourage risky behavior. People forget the lessons learned in prior recessions and overextend themselves.

Consumers can take on too much debt. Businesses may over-invest and build out too much capacity. We saw euphoria take hold in the stock market in the late 1990s and speculation run wild in housing not too long ago.

That brings us to the silver lining of the lazy pace of today’s economic environment.

Slow and steady has prevented speculative excesses from building up in much of the economy. In other words, a mistaken realization that the good times will last forever has not taken hold in today’s economic environment.

 Where are we today?

Inflation is low, the Fed is signaling a possible rate cut, and credit conditions are easy as measured by various gauges of credit. For the most part, speculative excesses aren’t building to dangerous levels.

While stock prices are near records, valuations remain well below levels seen in the late 1990s (I’m using the forward p/e ratio for the S&P 500 as a guide). Besides, interest rates are much lower today, which lends support to richer valuations.

Now, that’s not to say we can’t see market volatility. Stocks have a long-term upward bias, but the upward march has never been and never will be a straight line higher.

As I’ve repeatedly stressed, a financial plan is designed, in part, to keep one grounded during the short periods when volatility may tempt you to make a decision based on emotions. Such reactions are rarely profitable.

Final thoughts

Control what you can control.

You can’t control the stock market, you can’t control headlines, and timing the market isn’t a realistic tool. But, you can control your portfolio.

Your plan should consider your time horizon, risk tolerance, and financial goals. There is always risk when investing, but having a long term mindset, a conviction in your strategy and control of risk through effective diversification will increase your odds of investing success.