U.S. Economy Nears Growth Record

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The U.S. economy, absent a precipitous decline in payroll employment this quarter, will set a momentous record in July: the longest economic expansion in the nation’s 243-year history.

This news is a reminder of the perils of relying on the doomsaying mass media and economists to judge current macroeconomic conditions. “So we are very probably looking at a global recession, with no end in sight,” New York Times columnist Paul Krugman declared after the 2016 election. Two-and-half years of expansion later, it’s clear that Krugman, winner of a Nobel Prize in economics, should have studied the economic data better.

By contrast, it’s highly unlikely the Washington Post columnists responsible for headlines such as “The Trump Recession is Coming” (January 2018) or “A Recession Is Coming: Trump Will Make It So Much Worse” (December 2018) have any practical experience with the data professional economists use to judge the health of an economy. Nor are they alone. Conservative and libertarian columnists alike predicted recession was right around the corner for most of Barack Obama’s two terms in office, ignoring coincident indicators that showed a macroeconomic trough occurred in June 2009.

These coincident real-time indicators are comprised of four monthly reports on employment, production, sales, and income. A sober look at these four data is an antidote to the political bias and speculation that drives media reporting on the economy:

1) Monthly nonfarm payroll employment has expanded for 104 consecutive months, according to U.S. Labor Department statistics.

2) Industrial production, which measures the output of the nation’s factories, mines, and utilities, has grown 76 months during this expansion, though April’s reading was lower than December’s, according to Federal Reserve data.

3) Real manufacturing and trade industry sales hit a new high in March, Fed data shows.

4) Real personal income less government transfer payments increased in April, according to U.S. Bureau of Economic Analysis statistics. But April’s reading was lower than December’s, according to Fed data.

In sum, the most recent available data shows a U.S. economy on the cusp of its longest expansion, though growth is slowing and has perhaps even stalled during the first quarter. Still, preliminary figures for employment expanded in April and May. If employment—the broadest and most important indicator—continues to grow in June and July, U.S. economic growth will achieve a new record. On the other hand, job losses, combined with declines in the other three indicators, would imply recession.

The state of the economy, including the question of recession, is an important factor in presidential elections. The current expansion began 10 years and one month ago when the Great Recession ended in June 2009, according to the National Bureau of Economic Research’s chronology dating back to 1854. Nine elections have occurred in recessions. Republicans held the presidency in two of these (1876, 1900), while wresting it from Democrats in three others (1860, 1896, 1920). The GOP lost the White House in four of these elections (1884, 1932, 1960, 2008). A couple of these are well-known: FDR's defeat of Herbert Hoover in 1932 during the Great Depression, and Obama's win over John McCain in 2008 in the Great Recession.

Much less understood is the Federal Reserve’s impact on the politics of the economic outlook. Richard Nixon unsuccessfully sought to have the Federal Reserve lower interest rates in 1960 and blamed his defeat on Fed Chairman William McChesney Martin Jr.’s unwillingness to do so. Nixon swiftly replaced Martin with Arthur F. Burns after winning in 1968. Burns was committed to Nixon’s 1972 reelection and was able to get help from other Fed members to ease rates, according to Dr. Allan Meltzer's A History of the Federal Reserve, Vol. 2.

Also less known is how perception can override economic reality. Bill Clinton defeated George H.W. Bush in 1992 in part by relentlessly pushing the recession theme (“It’s the economy, stupid”)—even as the economy was expanding. The second-longest expansion, lasting 10 years, started in March 1991 under Bush père, though the media associates it with Clinton. Ironically, Bush had a degree in economics from Yale and yet was unable to effectively communicate that the improving economy was among the brightest of the “thousand points of light” on the horizon. 

Thus, the recession doomsaying coming from Trump’s opponents is not without cause. However, Trump is a better communicator, and seems unlikely to ignore any future employment gains on Twitter. Recession claims from his opponents will have little credibility if jobs creation continues unabated.

The NBER chronology only extends to 1854. Yet it is clear from earlier business annals and economic histories that the U.S. is on the verge of marking the greatest economic expansion in its history. Though, for political reasons, we are likely to soon witness a bitter debate about its future duration.

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