This article is similar to a couple of others that I have posted about before. See What ends expansions? (or what causes recessions according to Alan Blinder and Austan Goolsbee).
Excerpts from Hilsenrath's article:
"Economies aren’t like cars. They don’t just wear down and peter out after running for several years. Something needs to happen to knock them off course.
That’s potentially good news as the U.S. expansion reaches its 10-year mark this month. By July, it will become the nation’s longest on record—eclipsing the decadelong expansion of the 1990s—and there’s no economic rule that says it must end.
While many economists say this one is in position to keep going, risks are looming, most notably threats of tariff-driven trade wars with China, Mexico and others that damage business, household and investor confidence. A central bank mistake with interest rates is also a threat, and—because of the country’s ballooning budget deficit—fiscal policy is in a weaker position to help through spending or big tax cuts if the economy becomes stressed. Moreover, structural issues that develop as expansions age make them somewhat vulnerable to mishap."
"Though the U.S. expansion has been a long one, it has lacked vigor. The growth rate has been the most anemic on record, and the jobless rate took years to recede, with lower-skill workers seeing their main gains in just the past couple of years.
Wage growth also has been slow, though when adjusted for very low inflation real wages have grown more robustly than in other expansions. For many households, meanwhile, growing student debt loads have been a burden, and many of the gains from a strong market and recovering home prices went to the highest-income households.
Since World War II, the average U.S. expansion has lasted just 58 months, less than half as long as the current one, but periods of extended growth have been common in many other nations.
Australia is enjoying its 28th straight year of growth. Canada, the U.K., Spain and Sweden had expansions that reached 15 years and beyond between the early 1990s and 2008. Without the Sept. 11, 2001, terrorist attacks the U.S. might have, too.
France, Germany, the Netherlands, Norway, South Korea, Ireland, China and others have likewise experienced sustained periods of economic growth that lasted 15 years or more at different points since World War II, according to the Economic Cycle Research Institute and a Wall Street Journal analysis of global growth data."
"As long as the labor force is growing and workers are becoming more productive, economies, in theory, should keep growing."
"Three factors tend to trip them up: Shocks, excesses and central banks.
In 1990, an oil price shock related to Iraq’s invasion of Kuwait helped to sideswipe U.S. economic growth. It drove up gasoline prices and squeezed consumers and business profits. In 2001, the reversal of technology investment excesses derailed a strong U.S. economy. A stock price collapse destroyed investor wealth and crimped household spending plans, while businesses reined in investment. The Sept. 11 terrorist attacks were an added shock to an economy already on edge. In 2007, a housing bust and budding banking system crisis combined excess and shock to send the U.S. deep into recession.
Each of those cases was preceded by Fed interest-rate increases, which were meant to stop excesses from building. Higher rates hurt interest-sensitive sectors like housing and car buying and make it more costly for businesses to invest. In the most glaring example of the central bank’s key role in the U.S. business cycle, the Fed in the early 1980s pushed short-term interest rates sharply higher to tame double-digit inflation, driving the U.S. into a double-dip recession. In 1997, MIT economist Rudi Dornbusch wrote, “None of the U.S. expansions of the past 40 years died in bed of old age; every one was murdered by the Federal Reserve.”"
"An expansion in its eighth year was no more likely to end than one in its fifth."
"the hangover from the 2007-09 recession may have restrained the kinds of excesses in the current expansion that led to downturns in the past.
In the past five years, for example, U.S. financial sector debt has increased 9%, compared with a 64% increase in the five years before the last recession. Household debt is up 14%, compared with a 65% increase in the five years before the recession."
"Former central bank officials in Australia and Canada say financial regulatory scrutiny was an important factor in the long upturns their economies experienced"
"Big recessions also sometimes prompt policy changes that help sustain growth."
"Australia’s pre-expansion period in the 1980s and early 1990s was marked by economic malaise, including high inflation and budget deficits that officials set out to reverse with a central bank inflation target and fiscal belt tightening. It also helped that the country became a major exporter of commodities to fast-growing China."
"The current U.S. expansion has some trends going in its favor. Unlike the 1970s and early 1980s, inflation is low, taking pressure off the Fed to raise interest rates. The U.S. has become a large exporter of oil, making it far less susceptible to another oil price shock. Productivity growth is accelerating after a long period of dormancy, and a strong economy is drawing workers into the labor force."
"older expansions can become vulnerable. One reason is that excesses tend to build late in the cycle—when unemployment is low, confidence is high and risk aversion among businesses, investors and individuals is forgotten."
"This is also the stage in an expansion when the central bank has shifted its stance, from nurturing growth with low interest rates to preventing excesses with higher rates, raising the chances of a policy mistake."
"A recent Wall Street Journal survey shows most economists don’t expect a recession until 2021 or later."