In addition to bringing May Day which, as Deutsche Bank’s Jim Reid describes as “the day people danced around a maypole in funny outfits and generally partake in outdoor celebratory activities but if yesterday was anything to go by in London anyone going outside was likely to need to dance just to prevent frost bite“, the start of the new month marks a far more “historic” occasion: as we previewed three weeks ago, with the ticking over of the monthly calendar, this US economic expansion now becomes the outright second longest in history with data going back over 164 years and 34 business cycles.
According to Deutsche Bank’s calculations, at 107 months the current expansion just nudged ahead of the long 1960s expansion, and will beat the 1990s expansion for the title of longest expansion in history if it extends past July next year.
What is notable is that as discussed before, the last four expansions (since the early 1980s) have all been long ones and are all in the top 6 longest of all time. Why have they been so long? According to Reid it’s largely due to demographics and globalization colliding.
The global labour force has naturally surged since 1980 with China deciding to integrate itself into the global economy at almost the same point. China thus dumped an additional billion of low paid labour on the world. This has helped structurally depress global wages for three and a half decades and meant that policy hasn’t needed to be tightened as early in the last four cycles as through most of history.
While these factors have helped prolong these business cycles, the risk is that we’re just past peak global labor now and therefore subsequent cycles will see wage pressures, clashing demographics, labor shortages, rising yields and general market instability. Which is why Deutsche closes on a pessimistic note: “So the days of super long business cycles may be over so enjoy this one while it lasts.“
Or maybe not: as we also showed last month, according to the latest CBO forecast, the US is now expected to not have a recession any time until Dec. 31, 2028, which would imply that the CBO expects the current expansion to last no less than 234 months (since June 30, 2009), which would make it nearly 20 years long…
… and double the longest period without economic contraction in history, effectively unleashing an era of global peace and prosperity. Good luck with that.