Academic journal article ABA Banking Journal

Not Too Young, Not Too Old

Academic journal article ABA Banking Journal

Not Too Young, Not Too Old

Article excerpt

While the current expansion is five years old, many feel the economy is still in recession because they have yet to see improvement in their own job and income prospects. The lack of improvement in the labor market is evident in a variety of measures, including the still-large number of long-term unemployed and the much larger-than-usual number of people working part-time who say they want full-time jobs. The elevated level of job insecurity also is evident in the still-low levels of consumer confidence, and is a major reason why household formation and home sales have remained lackluster over the past few years. From this perspective, economic expansion still looks young.

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An expansion reaching its 60th month, as this one did in May, is anything but young. Average expansion length--the time between recessions--since World War II is 59 months. Some have been shorter and others have been longer. The last three expansions lasted an average of seven and one-half years, while the longest expansion in recorded U.S. history was ten years.

Expansions do not die of old age. Recessions typically come about due to a rapid unwinding of imbalances that have built up in the economy, which typically follow some sort of monetary or fiscal policy mistake, or some sort of massive exogenous shock. Given the sluggish recovery in the labor market and housing sector, as well as the absence of inflationary pressures, the recovery still more closely resembles an economy in its adolescence than one that is about to face a midlife crisis or the bitter medicine of an overly tight monetary policy or fiscal overkill. While imbalances may be building up in the technology arena, the oil patch and apartment markets are still at a point that will more than likely build further than suddenly unwind. …

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