8 Years of Growth? Not Likely….

I ran across this interesting chart (see below) at Barry’s site via BusinessWeek.  It shows the expected forecasts for the economy in the coming 4 years.  You’ll notice an interesting upside bias in the picture.  And although the economy has been “depressed” during President Obama’s first four years it has been growing.

This “math” thing is all the rage lately so let’s back out and look at the history of US expansions before we jump to conclusions based on the guesses of guys whose firms thrive in bullish economic environments.

Since 1850 there have been 33 economic expansions.  These 33 expansions averaged 37 months or 3.1 years.

But the expansions in the US economy have increased in length as the US economy has matured.  Since 1945 the average expansion has lasted 56 months or about 4.65 years.  If we want to get really narrow, the last 3 expansions have been even longer at 93 months or just shy of 8 years.

We’re now in month 38 of our economic expansion which means we’ve reached our maturity date using the long-term averages.  We’re still about 18 months outside of a recession using the post-war era data.  Obviously, these are averages, but the bottom line is, the odds of going 8 full years (both Obama terms) without another economic contraction are extremely low.  That doesn’t mean it can’t happen, but my guess is President Obama’s second term won’t be quite as friendly to him as his first….

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Cullen Roche

Mr. Roche is the Founder of Orcam Financial Group, LLC. Orcam is a financial services firm offering research, private advisory, institutional consulting and educational services.

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  • http://www.conventionalwisdumb.com Conventional Wisdumb

    One of my favorites charts of all time from James Montier on the futility of economist’s forecasting which is out of date but still illuminating:

    http://riskandreturn.net/wp-content/uploads/2012/01/Montier-on-Econ-Forcasting.png?84cd58

  • RB

    Not disagreeing, but if one were to wonder what eight years of uninterrupted growth would require, would there be a better candidate than a big secular shift in energy production and price?

  • Geoff

    The pre-1971 cycles are probably not as useful as the ones after. This would increase the odds of the current cycle being similar to the last three, i.e. 8yrs. All else equal, of course!

  • http://www.orcamgroup.com Cullen Roche

    Post ’71 we’re looking at an avg of 64 months or 5.3 years….

  • Geoff

    Wow, you really do have the data at your finger tips! Thx.

  • Joseph Browning

    How would the numbers look if one extrapolated based off the relationship between the length of the recession and the length of the following expansion for post ’71 period? ie… do longer recessions lead to greater expansion periods or to shorter ones or is there no apparent difference?

  • ChasW

    Have we reverted to the mean from the 2008 lows?
    I wonder if we could concatenate the reversion and the normal cycle to come up with a longer recovery cycle?

  • http://www.orcamgroup.com Cullen Roche

    10 years of data compiling. At your service. :-)

  • http://www.orcamgroup.com Cullen Roche

    Data’s pretty inconclusive there….Not really enough post-war data to make solid conclusions. Plus, I’d be worried extrapolating out. This is a really unusual environment….

  • Octavio Richetta

    Eric Sprott on Bloomberg todas agrees with a lot of this. Great stuff!

    http://www.bloomberg.com/video/sprott-on-gold-market-outlook-investment-strategy-hj6s7ev8SuGlKGZ2VQEU~g.html

  • InvestorX

    It seems that economists are forecasting the potential growth rate.

  • Pistol Pete

    My guess is slow muddle through growth actually allows for a longer expansion to catch up with cumulative growth from previous shorter duration expansions

  • Mikael Olsson

    The way I see it the recession JUST bottomed out:

    http://research.stlouisfed.org/fred2/graph/?g=cOY

    And we are now starting the upturn proper.

    But then again I base my theories on lack of money in circulation as a driving factor behind recessions post industrialization era.

    I’m not bearish about the coming 4 years on US economy strength alone. BUT .. mix in eurozone and china woes and who knows :P

  • Mikael Olsson

    Hmmm. I should subtract “savings” from the debt.. wonder if FRED has a good measure for that.

  • Mikael Olsson

    … and add federal debt.

  • Mikael Olsson

    No scratch federal debt, that’s too reactive when we want predictive

  • Mikael Olsson

    Sorry, just playing with graphs and found this one interesting:

    http://research.stlouisfed.org/fred2/graph/?g=cP2

    Debt – Savings per Head, CPI adjusted. Back to mid 90s levels and falling.

    Doesn’t take into account govt debt though. But also not trade deficit – not that all of that directly affects money available in everyday circulation. Argh. So hard to find good numbers.

    What I basically want is “amount of money actively moving through the everyday economy” which of course does not exist as a measured number – it is only indirectly observable.

  • Mikael Olsson

    I really should give up this line of reasoning, shouldn’t I? Too many factors. Federal debt includes lots of money going into corporate coffers right now (war supplies) and soldier’s wages being spent locally wherever they are. I also can’t compute the effect of the Romneys of the world, moving dollars offshore – I doubt that is included in the SAVINGS measure.

    Bah.