The economic expansion in the U.S. entered its eleventh year in July, making it the longest period of uninterrupted growth since 1900.

Jan 2020
Julianna Donovan

Growth has slowed recently, trending around 2% as the boost from tax cuts in 2018 faded, but the economy keeps plugging along at a consistent, albeit muted, pace. Despite the backdrop of weakness in global manufacturing and business spending, accompanied by worldwide political divisiveness, we believe there are several factors that support the expansion continuing at the current pace.

Echoing previous Economic & Market Commentaries, consumer spending remains strong, buoyed by an unemployment rate of just 3.5%, the lowest in a generation. Consumption represents about 70% of the growth in GDP (economic output) and provides a foundation for further growth. It has
been bolstered by the healthy job market and strong consumer balance sheets. Additionally, the pace of job creation remains steady and the participation rate in the labor market is rising, as the long-awaited gains in wages have held steady at 3%. Finally, we do not observe large imbalances in the more cyclical sectors of the economy such as housing and auto sales. Unlike past cyclical episodes, where speculative excesses led to a boom and bust in technology or housing, we do not see a “bubble” that might burst and destabilize the financial system, putting the entire economy at risk.

We expect favorable macroeconomic conditions characterized by low inflation and low borrowing costs to continue to underpin the current expansion. U.S. monetary policy remains accommodative and the Federal Reserve appears to have completed their “mid-cycle
adjustment” (see chart to the left). Having lowered short-term interest rates, the Fed will likely keep rates steady through 2020, which is not unusual in a general election year. Taken as a whole, these factors lead us to believe the odds of a recession in the U.S. remain low in 2020.

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