◼ ECONOMICS Bloomberg Businessweek June 10, 2019
33onthehorizon.JPMorganChase&Co.saysthe
probabilityofonebeginninginthesecondhalfof
2019 hasrisento40%from25%inearlyMay.
Theotherreasonpeopleareblaséaboutthis
milestoneisthattheexpansionhasbeennoth-
ingtobragabout.LikeLonesomeGeorge,the
gianttortoiseintheGalápagosIslandswholived
past100,it’sclumpedalongslowly,neveroverheat-
ing,whichis partofthereasonforitslongevity.Yet
we’vehadpeppierextendedgrowthcyclesbefore.
Inthefirst 39 quartersoftherecordexpansionof
1991-2001,grossdomesticproductincreased43%.
Inthe 39 quartersthroughthisMarch,U.S.GDP
grewjust22%.Andthesluggishexpansionhasben-
efitedcapitalmorethanlabor:Workers’shareof
nationalincomehasfallenfrom68.9%to66.4%
overtheperiod.
Atitspresentpace,thisrunwouldhavetolastsix
moreyearstomatchtheaggregategrowthof1991-
2001,andninemoretoreplicatethego-gogrowth
of1961-69,whenGDPexpanded54%,accordingto
calculationsbyNirKaissar,a BloombergOpinion
columnistwho’sfounderofassetmanagerUnison
Advisors.“Icharacterizethisastherecoveryoffits
andstarts,”saysMichelleMeyer,headofU.S.eco-
nomicsatBankofAmerica/MerrillLynch& Co.
Thehallmarkofthisexpansionhasbeenunder-
performance.TheFederalReserverepeatedlypre-
dictedit wouldneedtoraiseinterestratestotemper
excessivelyrapidgrowth—thenrepeatedlyputoff
hikingbecausegrowthcameinbelowexpectations
andinflationlanguishedbelowtheFed’s2%target.
Thecentralbankfinallydidstartratchetinguprates
inearnestattheendof2016,bya totalof 2 percent-
age points over two years. But it put its tightening
campaign on hold after its December meeting, when
plunging stocks, trade tensions, and a partial gov-
ernment shutdown rekindled fears of a slump. As of
June 5, the federal funds futures market saw a 95%
chance that the Fed would cut rates at or before its
September meeting.
Growth is lukewarm despite stimulative fiscal pol-
icy from Congress and the White House. The federal
budget deficit had shrunk to just over 2% of GDP
at the end of 2015, but it’s widened to almost 4.5%
since, thanks to the big tax cut at the end of 2017 and
more spending, particularly on defense.
The single best indicator of this expansion’s
weakness is the cost of money, as measured by
the real interest rate, which strips out inflation.
The yield on 10-year Treasury Inflation-Protected
Securities fell from 4% during the effervescent dot-
com boom at the end of 1999 to below zero in 2012
and 2013. It rebounded to just over 1% late last year
but has sagged back to 0.4%. When money is this
cheap,it indicatesweakdemandforcreditoran
overabundance of savings—or both.
To Harvard economist Lawrence Summers,
the expansion has all the features of “secu-
lar stagnation.” That’s a situation of chronically
weak demand, in which satisfactory growth can
be achieved only by extreme fiscal and mone-
tary stimulus. He figures that secular stagnation
plagued the U.S. in the 1950s and early 2000s,
in addition to the Depression of the 1930s, and
believes it’s now hitting much of the developed
world, including Japan and Europe. In fact, he
says, “We are doing by far the best.”
A Republican-controlled Congress turned down
Obama’s requests for continued fiscal stimulus but
said yes to Trump. However, the 2017 tax cuts were
tilted toward the rich, who don’t tend to spend
windfalls, and businesses, which haven’t stepped up
investment significantly. The National Association
for Business Economics said in January that in a poll
of its members, 84% said their companies hadn’t
boosted outlays or hiring in response to the tax cuts.
Kevin Hassett, chairman of Trump’s Council of
Economic Advisers, argues that the business tax cuts
lifted spending on plant, machinery, and software
onto a higher track. That will continue to pay div-
idends for the economy even if the growth rate of
newinvestmentreturnstoitspre-tax-cutpace,he
says.Hassett,whoseplanneddeparturefromthe
CEAwasannouncedbyTrumpina tweetonJune2,
also credits the administration’s policies with sus-
taining a high pace of job growth.
The indisputable achievement of the current
expansion is the decline in unemployment: At
3.6%, the rate in May was the lowest in half a cen-
tury. Employers’ eagerness to hire is benefiting
people who ordinarily have a hard time landing
jobs—the less educated, the handicapped, racial
minorities, and older workers, among others. Wages
have started to rise as well. Average hourly earn-
ings in April were up 3.2% from the previous-year
period, outpacing inflation. The availability of jobs
(along with a generally rising stock market) is lift-
ing consumers’ spirits. The Bloomberg U.S. Weekly
Consumer Comfort Index this year has been fluctu-
ating around its highest level since 2000.
Yet even on unemployment, there’s less than
meets the eye. People who’ve stopped looking for
work or who are working part time even though
they’d prefer full-time work aren’t counted in the
government’s main measure of unemployment.
Only 3.1% of men age 25-54 were officially unem-
ployed in April, but an additional 10.8% were out of
the labor force entirely, according to the Bureau of
Labor Statistics. “The United States is still a long● GDP growth during
thefirst 39 quartersof
expansion
◼Q1 1991 toQ4 2000
◼ Q2 2009 to Q1 201922%43%“The secular
stagnation
psychology has
taken hold of
the economy
more than it’s
taken hold of
economists”