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Two cheers for the US economy. Or maybe just one.
The world’s big spender of last resort is on the verge of breaking two records simultaneously. But only of them is worth bragging about.
“Within weeks, the US may have delivered both the longest and the weakest economic upswing in post-war history,” writes Stephen King, a senior economic adviser to HSBC, in a research note. “Measured by time alone, the current economic upswing is now looking rather mature.”
The chart below shows “post-war US economic upswings defined not so much by standard cyclical turning points (which are rather subjective) but instead by peaks and troughs in the unemployment rate. On this measure, the current economic upswing – if it continues – will soon be the longest on record.”
The downside? It’s also one of the weakest since World War II. “While the latest economic upswing has been very, very long, it has most certainly not been very, very strong,” King says.
“The US is on the cusp of breaking two [records] simultaneously: Within weeks, the US may have delivered both the longest and the weakest economic upswing in post-war history.”
June 2017 marked the 92nd month in which the unemployment rate was trending lower, King said.
“Should the expansion continue through to September 2017, the current upswing would then beat the record set by the US economy under the stewardship of Bill Clinton and Alan Greenspan between 1992 and 2000, a period that eventually came to be associated with a productivity ‘miracle’ and, thereafter, a technology bubble that had the temerity to burst,” King adds.
“Prior to the 1990s, the record for the longest upswing belonged to the 1960s, spanning the presidencies of Kennedy and Johnson. That upswing ended with Vietnam War-driven inflation.”
How does Trump stack up with his predecessors? “If history is any guide, the early years of the Trump presidency could prove to be economically challenging. The latest economic upswing is already very mature and Barack Obama was, of course, a two-term president.”
Still, as traders on Wall Street have grown fond of saying, economic expansions do not die of old age.
“Time alone is not the sole measure of economic ‘maturity,'” King writes.
He offers a series of other measures of economic development that “provide conflicting perspectives.”
“While the current unemployment rate is very low (suggesting the US economy has already enjoyed a sustained economic upswing), GDP growth has been remarkably weak, productivity growth has been disappointingly soft, wage growth has been extraordinarily muted and interest rates have hardly risen,” King writes.
So what’s going to happen next? King is honest enough to admit he does not know. No one can, especially not with a White House as volatile as the current one.
“The yardsticks by which we assess economic prospects are likely to be, at best, unreliable in coming years, with or without the uncertainties associated with the more protectionist tone adopted by the Trump Administration,” he concludes.