This past week at a conference, Dr. Michael Miller, Associate Professor of Economics at DePaul University, brought up that the U.S. is 82 months into an expansionary period. In the past, the average expansion period has lasted 58.4 months.
Though it's hard to believe because it hasn't really felt like growth, we have been slowly growing since July 2009. Are we overdue for a recession?
We started the year with a bit of turmoil in our stock market, mostly because of the uncertainty created by drops in the Chinese stock market. This stock market movement created, in some people, a fear that a possible repeat of 2008 was coming!
Dr. Ben Bernanke addressed this during his interview at the at the NMHC (National Multi Housing Council) national meeting in Orlando. Dr. Bernanke explained that the economy and the stock market are different things. The stock market is volatile. Even though it did experience losses during the first few weeks of the year, the economy was still strong.
The stock market is composed of several companies and doesn’t only reflect the U.S. economy but global markets. Overall, as much as we fear, a decline in the stock market does not mean the same thing as a recession. So that is definitely a relief!
What To Look For
So, if the stock market is not a good indicator of the strength of our economy, what are thing things that we can look at to determine the strength of the U.S. economy?
1. The Job Market Is Strong
For the past 6 months, the unemployment rate has been at 5% or less (since October 2015). On average during the past 12 months, we have been adding over 200,000 jobs per month.
Overall, jobs are being created and the job market is a good one—especially in the private sector.
2. Wealth Is Rising
This is true both on the individual and corporate level.
At the individual level, household assets are rising in value and debt is declining. This means wealth is rising. Furthermore, household income has not yet reached pre-recession levels and the expectation is that income should continue to rise adding to household wealth.
Meanwhile, if we look at the corporate level cash is plentiful and is available to fund future expansions.
As individual and corporate growth increases their confidence in the economy, they have the money to spend and use it to continue to create growth.
3. Energy Costs Are Low
Low cost of energy is a positive for most and brings strength to the economy. According to BBVA Research in the U.S. Regional Economic Watch, the non-energy transportation sectors, along with state and local governments, will benefit from substantial reductions in energy expenditures during this year. And of course, on a individual basis, this leaves more cash available for personal consumption.
Growth In The Future
With these three factors supporting the fundamentals of the economy, 2016 and 2017 should continue to be years of growth. While growth very well may be slow (1-3% annually), we should not be facing a recession in the near future. As Dr. Bernanke put it, the U.S. fundamentals are good with strong demographics and we are still considered the envy of other world economies.
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