Is the Long Expansion Over?
July 2019 marked the 121st month of the economic expansion that began after the Great Recession. That makes it the longest expansion in American history, surpassing the 10-year expansion of 1991-2001.
But wait. The yield curve has inverted. Recreational vehicle sales are down. The “R-word,” recession, is trending on Twitter. Are we in recession already? Did our expansion fall short of the record? How do we know when expansions end and recessions start?
We know, because the National Bureau of Economic Research tells us. The NBER is an economic research organization based in Cambridge, Massachusetts, and it’s the go-to arbiter of business cycle dates. Their business cycle dating committee marked the first month of the Great Recession as January 2008. They marked the first month of our long expansion as July 2009. You can find the NBER online at www.nber.org.
The NBER is a research organization, not a forecasting group. They are very careful in marking the peaks and troughs of the economy. Even if a recession has started, they’ll watch the data for many months to make sure. They didn’t announce the January 2008 Great Recession date until December 2008. The media had great fun writing headlines like “this just in: recession started last year.”
It’s often said that a recession is two straight quarterly drops in inflation-adjusted gross domestic product. That’s not the NBER’s definition, though. They need monthly data, and GDP is measured quarterly. The NBER looks at four main monthly indicators of economic activity to mark recession and expansion dates. They are: total payroll employment, the industrial production index, real personal income not counting entitlements, and real manufacturing and trade sales. “Real” means adjusted for inflation.
Here’s what happened the last time, at the start of the Great Recession. Total employment peaked in January 2008. It began a 21-month decline that February, and didn’t reach its January peak again until May 2014. Likewise, industrial production peaked in December 2007, real income less entitlements peaked in April 2007, and manufacturing and trade sales peaked in October 2007. The NBER looked back at these dates, and marked the expansion’s peak in December 2007. The recession began in January 2008.
Those are the numbers that the NBER watches to decide whether a recession has started. We can look at them too. As it turns out, two of them have peaked. Industrial production hit a high point in December 2018, and has declined in four of seven months through July. Manufacturing and trade sales peaked in January 2019, and dropped in two of four months through May (the most recent data).
The other two indicators have continued to grow through the most recent data in July. Employment and income had not peaked. Without peaks in all four measures, we can be pretty sure that the NBER will not mark July 2019 as a recession month. Yes, the 2009-2019 expansion is the longest in American history. Huzzah!
Before we get too giddy, though, let’s consider a little history. Industrial production peaked in June 2000. Manufacturing and trade sales peaked in September 2000. Employment peaked in February 2001, and income peaked in March 2001. NBER marked the 2001 recession as beginning in April 2001. So for four months, October 2000 through January 2001, two indicators had peaked, but two continued to grow. Just like now. A recession could be on the horizon.
So is the expansion doomed? Have two indicators ever peaked, but a recession did not follow? Yes, and it’s recent history. Industrial production peaked in November 2014 then declined in 14 of the next 16 months. Manufacturing and trade sales peaked in September 2015, and fell in three of the next four months. So, from October 2015 to January 2016, two indicators had peaked, and two continued to grow. Just like now. No recession followed.
Our economy was not in recession in July. This is the longest expansion in history. But two of the four measures used to determine recession dates have already peaked. When that happened in 2001, a recession followed. When it happened in 2015, there was no recession. Our expansion is not necessarily doomed. But if employment and income stop growing, the longest expansion will be over.