We’re in the longest economic expansion in US history — here’s what made it unlike any other
Tune out your recession worries for just a bit.
With the calendar’s turn from June to July, the economic expansion is now the nation’s longest on record – lasting a whopping 10 years and one month.
That’s a milestone for the U.S. economy. It’s nearly seven times longer than the average expansion (17.5 months), at least since economists first started tracking the ebbs and flows of business cycles in 1854.
When the expansion first began in June 2009, the U.S. economy looked far different than it does now. Nearly 9.5 percent of the population was jobless, the highest in 26 years; the S&P 500 index was at the 924 level and the Fed’s benchmark interest rate sat near-zero. Today, the unemployment rate is at a near 50-year low. The U.S. central bank has hiked the federal funds rate nine times since and the S&P 500 has more than tripled.
That could very well continue to be the reality, as the expansion doesn’t show any immediate signs of coming to a grinding halt.
“There are signs the expansion has slowed, but none that it is hitting a brick wall,” says Mark Hamrick, Bankrate’s senior economic analyst. “Consumers have remained upbeat with their spending and attitudes, while business is working through uncertainty mostly associated with trade disputes, tariffs and a slowing global economy.”
The National Bureau of Economic Research’s Business Cycle Dating Committee – the official arbiter of when expansions start and end – has yet to officially declare this stretch of growth the longest. The committee normally delays its formal economic analysis by about a year, awaiting as much clarity in the data as possible. But making it to July 2019 without any evident clunks in the machine is still a prominent milestone for the U.S. economy.
Here’s a look at the key highlights that helped drive (or challenge) the current expansion over the past 10 years – and a look at where the economy may be headed.
Milestones of the economic expansion:
- Barack Obama takes office, implementing stimulus packages
- Economic growth still falters
- Obama signs Dodd-Frank, HIRE, American Jobs acts into law
- Ben Bernanke reconfirmed as Fed chair, starts second round of QE
- U.S. employment starts to pick back up — slowly
- Fed begins Operation Twist, starts third round of QE
- Government shutdown impacts economy
- Janet Yellen becomes Fed chair amid a wave of stronger positive data
- Trump takes office, implements Tax Cuts and Jobs Act
- Markets smash records, post strong annual performance
- Powell appointed to Fed, confronting unconventional presidential backlash
- Job market fires on all cylinders
- Trump administration heats up trade wars
2009-2013: The years of sluggish growth
➤ Barack Obama takes office, implementing stimulus packages
Barack Obama made history when he was inaugurated on January 20, 2009, but there would be almost no time to celebrate. The president inherited an economy in turmoil, and he’d be forced to initiate policies to keep it afloat.
Though the expansion officially started in June 2009, it’s worth looking back at the actions he took when he first stepped into office. In February 2009, Obama signed into law the American Recovery and Reinvestment Act, a fiscal stimulus package meant to jumpstart growth, preserve jobs and create new positions. It also provided temporary relief to individuals impacted by the recession, as well as money for infrastructure, education, health and renewable energy projects.
Proponents said the bill would stimulate economic growth, but critics of the bill identified budgetary concerns. Initial estimates for the bill reported a likely cost of $787 billion, but the Congressional Budgetary Office in 2015 released a report showing that the total cost was $840 billion. Relief efforts in the aftermath of the Great Recession contributed to the federal deficit hitting $1.4 trillion, according to the U.S. Office of Management and Budget.
Obama’s additional stimulus packages included the Car Allowance Rebate System – also known as “Cash for Clunkers” – which gave consumers a credit of up to $4,500 to trade in older vehicles for a new, fuel-efficient one. Congress also introduced an incentive program for first-time homebuyers, as well as an extension of unemployment benefits.
➤ Economic growth still falters
The U.S. economy posted a sluggish recovery after the recession ended in 2009. Despite the official records showing the downturn ended in June, the unemployment rate continued to climb, hitting as high as 10 percent in October – the highest rate since the 1980s.
Employers also continued to drastically shed positions from their payrolls, with the U.S. economy losing a total of 1.7 million positions between June and December 2009. In November, employers added 12,000 jobs, the first positive month for payrolls after 21-straight months of declines. By December, however, they would decline again by 269,000.
Gross domestic product, the official scorecard for the U.S. economy, contracted by 3.9 percent through April, May and June. During the third quarter, it shrank by 3 percent. Finally, during the last three months of the year, the U.S. economy grew – but only by 0.2 percent.
➤ Obama signs Dodd-Frank, HIRE, American Jobs acts into law
The following year would bring new legislation meant to prevent future downturns from becoming as severe as the last financial crisis.
In July of 2010, Obama signed into law the Dodd-Frank Wall Street Reform and Consumer Protection Act, which increased regulation and oversight over financial institutions. Among the new initiatives, the bill created the Consumer Financial Protection Bureau (CFPB). It also introduced a new guideline for commercial banks known as the Volcker Rule, which prevents banks from investing in risky assets such as the faulty collateralized debt obligations (CDOs) that led up to the 2007 crisis.
It also formed new regulatory duties for the Fed, requiring it to institute stress tests across the financial system’s largest banks to ensure they have enough liquidity to survive an economic shock.
Additionally, Obama signed the Hiring Incentives to Restore Employment (HIRE) Act and the American Jobs Act into law. These pieces of legislation provided incentives to firms to add new positions by instituting payroll tax breaks.
➤ Ben Bernanke reconfirmed as Fed chair, starts second round of QE
In January, the Senate Banking Committee granted Fed Chair Ben Bernanke a second term, but it wouldn’t be easy. Though Bernanke instituted key measures to keep the economy afloat, such as TARP and the large-scale asset purchases (LSAP) of mortgage-backed securities and Treasuries, lawmakers endorsed him 70-30, the weakest margin in the Fed’s 96-year history.
The vote illustrated just how powerful Fed criticism had become, in light of its big bank bailouts and failure to prevent the crisis.
Bernanke would use his newfound position to kickstart another round of LSAP, also known as quantitative easing. After the Fed slashed interest rates to near-zero in response to the economic crisis, officials instituted this unconventional monetary policy tool to bring down long-term interest rates. Colloquially, the program would come to be known as QE2.
In November 2010, this mechanism involved buying $600 billion of Treasuries with a longer maturity at a pace of about $75 billion each month, according to the Fed. The program would last until the second quarter of 2011.
It was a continuation of the first round of QE, instituted between 2008 and 2009. The Fed purchased $300 billion in agency debt, $1.75 trillion in mortgage-backed securities and $300 billion in long-term securities across several quarters.
The Fed would add all of these purchases to its balance sheet — a financial statement showing the U.S. central bank’s total assets and liabilities.
➤ U.S. employment starts to pick back up — slowly
In October, employers in the U.S. officially began their positive streak of creating new positions, which has continued today, adding 269,000 new jobs to their payrolls in the month. The unemployment rate, however, was slow to rebound, falling to as low as 9.3 percent, and reaching as high as 9.9 percent during the year.
The U.S. economy expanded by an average of 2.58 percent throughout 2010, according to the Department of Commerce’s Gross Domestic Product (GDP) data.
➤ Fed begins Operation Twist, starts third round of QE
In 2011, the Fed announced a new form of quantitative easing that would later come to be known as “operation twist.” It refers to a swap in Treasuries on the Fed’s balance sheet portfolio. Instead of holding Treasury notes with a short duration, the Fed would start to hold long-term notes and bonds with a longer term.
On Sept. 21, 2011, the Fed announced that it would sell $400 billion worth of Treasury securities with a maturity of three years or less, and then use those funds to purchase Treasury securities with a maturity of 6 to 30 years. That initiative would last until June 2012.
Nearly a year later, on Sept. 13, 2012, the Fed began its third round of large-scale asset purchases. Following the FOMC meeting, members of the rate-setting committee announced plans to purchase $40 billion per month in mortgage-backed securities. Officials also said they’d continue to extend Operation Twist. Those actions together would increase the Fed’s holdings of longer-term securities by $85 billion, according to the Fed.
Additionally, the Fed started to express that it wasn’t exactly confident in the direction of the labor market. With the unemployment rate holding near 7 percent, Fed officials told the public they could expect additional purchases of mortgage-backed securities, additional asset purchases, and for the Fed to employ other policy tools as “appropriate.”
➤ Government shutdown impacts economy
On Oct. 1, 2013, Congress failed to approve a fiscal year 2014 budget, leading to a 16-day government shutdown that left 800,000 federal workers on furlough and more than a million without pay. Two different issues factored into the impasse: the Affordable Care Act, also known as Obamacare, and the debt ceiling, which is the legal amount that the government is allowed to borrow.
As a result of the shutdown, the job market took a hit. The average pace of monthly job creation each month during the first half of the year was more than 201,000. During the second half of the year, however, that total fell to about 182,000.
By October 17, however, Congress came to a deal. But economists estimate that much of the damage had already been done. Standard & Poor’s predicted that the shutdown shaved a total of $24 billion off the economy and trimmed at least 0.6 percent off 2013 GDP.
2014-2017: Momentum mounts
➤ Janet Yellen becomes Fed chair amid a wave of stronger positive data
In January of 2014, a leadership change occurred at the Fed: San Francisco Fed President Janet Yellen was confirmed as the new chair of the U.S. central bank, succeeding Ben Bernanke after his term ended on Jan. 31.
But it wasn’t just an exchange of powers — it would prove to be a regime change for the Fed.
Under Yellen’s leadership, the Fed would go on in December 2015 to hike rates for the first time in nearly 10 years, marking the end of the most accommodative Fed policy in U.S. history.
At the time, the unemployment rate in December fell to 5 percent, still higher than its pre-recession low, but the lowest rate in nine years. Yellen, however, acknowledged that future improvement was needed, but mentioned that the move reflected significant progress that the economy had made. The U.S. economy had also posted its best back-to-back quarters of growth, a superlative that’s still true today. GDP in the second quarter of 2014 grew by 5.1 percent, followed by a growth rate of 4.9 percent in the third quarter.
“Room for further improvement in the labor market remains, and inflation continues to run below our longer-run objective,” Yellen said during the post-meeting press conference. “But with the economy performing well and expected to continue to do so, the committee judged that a modest increase in the federal funds rate target is now appropriate, recognizing that even after this increase monetary policy remains accommodative.”
Throughout her helm at the Fed, Yellen would also help usher in four more 25 basis point increases, bringing the federal funds rate to 1.25 percent and 1.5 percent by the time her tenure ended in 2018. She was also in the role during its announcement in September 2017 to start implementing a balance sheet normalization process.
➤ Trump takes office, implements Tax Cuts and Jobs Act
Changes also took place in the Oval Office, with Donald Trump officially becoming president in 2017.
Soon after becoming the chief executive, Trump in December signed into law the Tax Cuts and Jobs Act of 2017, reducing tax rates on both business and individuals’ income. It also enhanced incentives for business investment.
The bill acted as a tailwind for growth, stimulating demand for goods and services. In other words, because individuals and businesses were paying less in taxes, they were thought to spend more. The Tax Foundation Taxes and Growth model estimated that the legislation would increase GDP over the longer run by 1.7 percent, create more than 300,000 new positions and increase workers’ wages.
It also, however, widened the federal budget deficit. Typically, that gap closes during periods of strong economic growth. That, however, wasn’t the case, with the shortfall expanding since 2016.
➤ Markets smash records, post strong annual performance
It was a record-breaking year for the S&P 500 and Dow Jones Industrial Average indexes.
Not only did the Dow close above 20,000 for the first time in history, but it also climbed higher than 25,000 by the time 2017 came to a close. At the same time, the S&P 500 rose from 2,400 points at the start of the year to more than 2,700 points by the end of it.
2018-2019: Turning the corner
➤ Powell appointed to Fed, faces unconventional presidential backlash
Trump in 2018 chose not to renominate Yellen for a second term, instead appointing Fed governor Jerome Powell, a former lawyer and investment banker.
Soon after, the unemployment rate continued to fall in 2018, while inflation looked like it could be building more momentum. That led the U.S. central bank to increase interest rates four times in 2018 — irritating the president.
In July 2018, after two Fed rate hikes, Trump on CNBC made his first critical remarks about the Fed in an interview. “I don’t like all of this work that we’re putting into the economy and then I see rates going up,” he said.
Those comments only continued to escalate, with Trump saying the Fed had gone “loco” with interest rates hikes. He reportedly discussed with staff whether he had the authority to replace or demote Powell.
The markets weren’t always on Powell’s side, either. After the Fed hiked rates for the fourth time, Powell told journalists in a post-meeting press conference that the balance sheet normalization process was on “autopilot,” spooking investors. Stocks subsequently posted their worst December since the Great Depression.
The Fed, however, is now in the middle of a monetary policy U-turn. Between January and May of 2019, officials pledged that they would be patient with future interest rate adjustments, adding that they see no signs that a move in either direction is necessary. That picture changed when the president slapped higher tariffs on $200 billion worth of duties from China. Now, Powell and his colleagues have echoed that they’re vigilantly watching developments and will “act as appropriate to sustain the expansion.”
For the first time in its history, eight officials on the Fed’s so-called “dot plot” forecasted interest rate cuts.
➤ Job market fires on all cylinders
When the expansion began in 2009, the U.S. job market was slow to recover. Now, it’s one of the shining lights of the current expansion.
Employers in the U.S. have added positions for a record 105-straight months, with 2018 being one of the strongest years of the expansion for job creation. That year, the average pace of monthly job gains was 223,000. The unemployment rate, meanwhile, fell to as low as 3.7 percent. The last time that happened, astronauts were walking on the moon.
That picture looks generally the same in 2019 — though the job market has shown signs of slowing. In February and May, employers added fewer jobs than economists had originally estimated, creating merely 56,000 and 72,000 new positions, respectively. Rebounds, however, followed each of those downside surprises, with the U.S. economy in June adding a blockbuster 224,000 new positions — well above the consensus estimate.
The unemployment rate in 2019, meanwhile, edged down to 3.6 percent, the lowest of the expansion.
But one aspect of the job market has continued to puzzle economists: wage growth. Employees’ year-over-year growth in average hourly earnings breached 3 percent for the first time in October 2018, an occurrence that typically takes place much earlier in a period of low unemployment, according to an economy model known as the Phillips curve.
Wages grew annually by as much as 3.4 percent in February, an all-time high of the current expansion.
➤ Trump administration heats up trade wars
Though the U.S. economy in 2018 looked like it could never come down, an economic threat loomed over business and consumer sentiment alike: the Trump administration’s trade wars.
Most of the attention has focused on White House officials’ negotiations with China, but since 2018, they’ve raged on multiple fronts — from South Korea and India, to Canada and Mexico.
In January 2018, the first battle occurred as Trump enacted $8.5 billion tariffs on imports of solar and panels and washing machines to safeguard American products. Then, in March, officials announced forthcoming tariffs on steel and aluminum under measures of national security. By July, the U.S. imposed its first round of tariffs on products from China, starting with levies on $50 billion of goods and then escalating into duties on $200 billion.
The current year hasn’t been quiet, either. In 2019, the Trump administration threatened to slap tariffs on all imports from Mexico that would incrementally increase, in an effort to curb illegal immigration. Those threats, however, have since been taken off the table.
Meanwhile, the U.S. in June slapped even higher taxes on imports from China, all the while threatening to impose even more. That now appears to have stalled, with Washington and Beijing arriving at a truce following the G-20 summit in Osaka, Japan.
Where is the economy headed?
The U.S. economy has come a long way in ten years. But the legacy of the longest expansion on record won’t exactly be a story of booming, unmatched growth.
Compared to previous expansions, the pace of growth has been lackluster. Gross domestic product — the broad scorecard for economic growth — grew by about 42 percent in the first 39 quarters of the previous 1991-2001 record expansion. In the 39 quarters through this March, GDP has grown by 24 percent in comparison.
An expansion characterized by sluggish initial growth could be a result of the previous downturn’s severity, says Lynn Reaser, chief economist at the Fermanian Business & Economic Institute and a professor at Point Loma Nazarene University.
“The history of expansions following downturns that follow financial crises is that they are typically sluggish as time is required to heal imbalances,” she says.
While job growth, stock prices and record-low unemployment has proved to be impressive, its biggest disappointments involve anemic productivity growth, a low rate of labor force participation and wage gains, as well as a lackluster response in new homebuilding, she says.
“Most Americans, however, would rather have a long-term job than a heated market that would generate a large raise but would subsequently find them without a job,” Reaser says.
And by some metrics, it’s evident that many Americans haven’t quite felt the prosperity typically thought to be granted by a strong economy and booming job market. A June 2019 Bankrate survey found that nearly half of Americans who were adults during the Great Recession have not experienced an improvement in their financial situation. Nearly one in four (or 23 percent) say they are worse off now than before the worst economic crisis in nearly 80 years hit.
That’s keeping Americans up at night. The majority (or 56 percent) of adults in the U.S. report losing sleep over one money issue, according to a separate Bankrate survey from June. Nearly one in three are losing sleep over their ability to pay for everyday expenses.
“While on the one hand, more than 3,650 days have passed since the official end of the last recession, many Americans haven’t made the kind of progress they would have liked with their own personal finances,” Bankrate’s Hamrick says. “And for those who have had more success with their financial goals, the echoes of the crisis and Great Recession continue to serve as a reminder of the potential damage linked to downturns.”
Though the U.S. economy doesn’t look as if it’s about to crash anytime soon, there’s still a lot of uncertainty up in the air. The trade war with China could indeed lead the Fed to cut rates when it next meets on July 30-31. Meanwhile, the New York Fed’s recession probability model is now at 32.88 percent — the highest since before the financial crisis.
The longer the expansion lasts, the more focus is put on what will cause its untimely end. It’s best to make financial hay while the sun is still shining and prepare for the next downturn before it begins, Hamrick says.
“None of us know when the next economic downturn will emerge, but we know that one will certainly emerge at some point,” Hamrick says. “That’s why individuals should resolve to continue to pay down (or pay off) debt and to boost savings for emergencies, retirement and other key financial objectives.”
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