Goldman says this may become the longest economic expansion in history

 

  • Goldman Sachs economists said, in a recent note, that there is now a two-thirds chance that the recovery will be the longest on record.

  • The current expansion has already lasted 95 months, now the third-longest in U.S. history in 33 business cycles going back to 1854, the economists said.

  • The Goldman economists also say the medium-term risk of a recession is rising, “mainly because the economy is at full employment and still growing above trend.”

    104343910-RTSYYXR.530x298Since the financial crisis, the economy has never been called robust, but it may be in the longest expansion on record, with a couple more years to go.

    Goldman Sachs economists said, in a recent note, that their model shows an increased 31 percent chance for a U.S. recession in the next nine quarters. That number is rising. But it’s a good news, bad news story, and the good news is there is now a two-thirds chance that the recovery will be the longest on record.

    “The likelihood that the expansion will break the prior record is consistent with our long-standing view that the combination of a deep recession and an initially slow recovery has set us up for an unusually long cycle,” they wrote.

    The current expansion has already lasted 95 months, now the third-longest in U.S. history in 33 business cycles going back to 1854, the economists said.

    “Only the expansions from March 1991 to March 2001 [120 months] and from February 1961 to December 1969 [106 months] were longer,” they wrote.

    The Goldman economists also say the medium-term risk of a recession is rising, “mainly because the economy is at full employment and still growing above trend.” They define a recession as a quarter of negative growth.

    “The most obvious way to keep risk from rising much further would be a slowdown of output and employment growth to a trend pace before too long,” the economists wrote. This would require more Federal Reserve tightening than is currently priced in the bond market, they wrote.

    1494259717_recessionriskApril’s strong jobs report last Friday provided some comfort that U.S. economic growth isn’t flatlining, after a stream of economic data that fell below expectations. U.S. GDP grew at just 0.7 percent in the first quarter, and economists expect second-quarter GDP to be as much as 3 percent or even more.

    While many economists were encouraged by the 211,000 jobs created last month and 4.4 percent unemployment rate, the Goldman economists, in a separate note, wrote that they see the potential for the labor market to overheat.

    The economists say their model says “that recession risk at the 1, 5, and 9-quarter horizon is well explained by lagged GDP growth, the slope of the yield curve, equity price changes, house price changes, the output gap, the private debt/GDP ratio, and economic policy uncertainty.”

    Article and image provided by: CNBC.com

 

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