QUARTERLY MARKET COMMENTARY : Second Quarter 2017
As we enter the second half of the year, the U.S. economic expansion is now in its 97th month, the third longest on record. For comparison, the average expansion since 1900 has lasted just shy of four years, or 47 months to be exact. Given how far beyond that average we currently are, a natural inclination is to wonder just how much longer this can go on. Aren’t we due for a recession or some type of pullback? Not necessarily in our opinion. In fact, when looking at the length of historical business cycles, there has been a substantial increase in their typical duration as the economy has matured. For example, the average length of the 18 expansions from 1900 – 1980 was a mere 36 months. But what about the five cycles from 1980 through the present? 76 months. From that perspective, our present situation doesn’t seem near as worrisome. Economists often refer to these types of differences as a “regime change.” More specifically, a regime change is a distinct shift in the characteristics of certain economic phenomena in one time frame compared to a previous one. In this case, business cycles have evolved from stronger, but briefer expansions, to cycles that may now be more-muted, but longer lasting. None of this is to say that the business cycle is dead, or we needn’t worry about another recession – neither is the case, no matter how badly central bankers wish it was. Thus, it’s not simply the passage of time itself, but rather the strength, or lack thereof, for economic fundamentals.