The record-breaking US economic recovery in charts

Longest expansion in modern American history is also the weakest

Robin Wigglesworth in New York and Keith Fray in London

© FT montage

The post-crisis US economic expansion this week became the longest uninterrupted stretch of growth in modern American history. Yet it has been a mixed performance, and some signs of decrepitude are beginning to show.

President Donald Trump has claimed credit for the growth spurt, tweeting on Tuesday that “the Economy is the BEST IT HAS EVER BEEN! Even much of the Fake News is giving me credit for that!”. But he has only been president for 2½ years of the decade-long expansion.

The US economy exited its financial crisis-induced recession in June 2009, according to the National Bureau of Economic Research. This week it hit a record 121st month of expansion, surpassing the 1991-2001 economic boom — current growth is running at about 1.5 per cent according to the Atlanta Fed’s “nowcasting” model.

Better than the rest

The US economic recovery has been better than those of other leading developed countries, many of which suffered their own financial crisis or subsequent economic tribulations in the decade from 2008 onwards.

The US initially lagged behind Germany and Canada in the early years of the recovery, but the German economic machine began to splutter during the eurozone crisis, and Canada’s recent deceleration means that America has pipped it to the top-performing spot among developed economies since mid-2009.

Long but limp growth

Although it has been a long recovery, it has been relatively weak by historic standards.During the previous record expansion, the Clinton-era boom of the 1990s, the economy grew by 43 per cent, and in the shorter Reagan-era boom of the 1980s it increased by 38 per cent. The present period has seen cumulative growth of only 25 per cent — equating to average annual growth of 2.3 per cent, the lowest in the modern era, and well below the 7.6 per cent achieved on average during the postwar expansion in 1950 to 1953 — the highest annual growth rate of recent decades.

Chart showing how the record period of growth in the US is anaemic in level compared to previous booms

Crisis hangover

Financial crises tend to lead to feeble economic recoveries as companies, governments and ordinary people struggle to deal with the wreckage left in their wake.

US economic growth in the current decade has been the poorest of any 10-year period since NBER’s measures begin in 1854, with the exception of the Great Depression in the 1930s, and the 2000s, which were blighted by two recessions.

Chart showing how US growth is lower in this decade than any other decade since 1860 with the the exception of the 1930s and the 2000s

Manufacturing the weak link

The relative weakness of the current economic expansion is owing to the underperformance of the manufacturing sector.

Despite Mr Trump’s rhetoric in the 2016 election campaign about sparking a revival in the traditional industrial regions of the US, this expansion has been overwhelmingly based on services, which were responsible for two-thirds of the increase in value added from 2009 to 2018.

Manufacturing, in contrast, contributed less than 10 per cent of the total increase. Extractive industries — particularly shale gas — also provided a much-needed boost to the economy in the early years of the decade.

Inequality on the rise

Another drag on growth has been the rise of social and economic inequality.

Not all Americans have benefited from the decade of growth. While median household income, adjusted for inflation, rose almost 8 per cent from 2009 to 2017 — the latest data available — the average conceals significant differences at either end of the income scale.

The top 20 per cent of households have seen a 13 per cent increase over the period but for the poorest fifth the corresponding rise is only 0.2 per cent.

Jobs, jobs, jobs

On the face of it, the labour market has put in a solid performance. The unemployment rate is at a half-century low of just 3.6 per cent, and job openings now outpace the number of registered unemployed people by a record number.

Some employers complain of skills shortages, which could be holding growth back somewhat, but it indicates that the jobs market is fairly tight.

Wages are rising

The tight labour market has taken time to feed through into wages, but there are some signs of pressure on employers to increase salaries. Wage growth has been heading haltingly upwards since 2015.

That has helped improve household balance sheets and supported consumption — the single biggest driver of the US economy.

However, year-on-year growth in average hourly earnings has slowed in recent months, and job creation disappointed in May, stirring concerns that the long-lived expansion may finally be weakening.

Citi’s economic surprise index, which measures whether data are coming in better or worse than expected, has been in negative territory throughout 2019, suggesting that other economic indicators are also weakening.

Bond market warning

Perhaps the biggest alarm bell is going off in the bond market. The so-called yield curve — the yields paid by US Treasury bonds at a range of maturities — has inverted, with 10-year government bond yields paying less yield than short-term bills.

Normally borrowing money for longer periods should cost more, and when this normal relationship is upended it indicates that investors think the growth outlook is weakening and the central bank will have to cut interest rates. An inverted yield curve has historically been a signal that a recession is looming.

The US Federal Reserve has warned against over-interpreting the yield curve movements, but the New York Fed’s own yield curve-derived recession probability model indicates a near-30 per cent chance of an economic downturn over the next 12 months.

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