Economic Insights - April 2018

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The current U.S. economic recovery started in June 2009, 105 months ago, making it the third longest recovery in U.S. history. Compare what we are experiencing during thissecular bull market and what we experienced during the lastsecular bull market.  The longest recovery took place in the 1990s and lasted 120 months. Real GDP increased at an average annual rate of 3.6 percent.  This time, the recovery has experienced just a 2.2 percent average annual growth rate.

However, instead of the consensus view of coming to an abrupt end, landing the economy in recession, that low growth trajectory seems to be changing for the better.  The labor market is definitely gathering strength. In the past six months, average hourly earnings are up at a 2.7 percent annual rate. The total number of hours worked is up at a 2.6 percent annual rate.

New orders for “core” capital goods, which are capital goods excluding defense and aircraft, were up 6.3 percent in the year ending in January, while shipments of these capital goods were up 8.7 percent. Sales of heavy trucks (more than 7 tons) are up 17.4 percent from a year earlier. Recent ISM surveys, for Manufacturing and Services, have beaten consensus expectations.

Housing has been wishy washy in the early part of the year, but that has been the case in prior first-quarter reports during this recovery. In the fourth quarter of 2017, there were 1.3 million new housing permits issued, the highest quarterly total since 2007. Housing starts have increased eight years in a row. Both new and existing home sales were higher in 2017 than they were in 2016.

That scenario doesn’t seem like one that supports a view that just because the recovery is old, it is ready to fall apart and bring on a recession. Initially, the U.S. economy may not grow at a 3 percent pace every quarter, but all this data suggests that growth will slowly work its way to an average above 3 percent. The bottom line is that the U.S. economy is accelerating, not decelerating, and the probability for a near-term recession is extremely low.

Of course, just when it appears some are convinced of that, or when it actually starts to occur, the next worry comes along. The view then becomes, let’s all...

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