The U.S. economy is entering its fourth year of an expansion that began in May 2020, according to the Business Cycle Dating Committee at the National Bureau of Economic Research (NBER) in Cambridge, Massachusetts.
A year and a half ago, I said: Business and politics talk column Measures of production, income and sales showed economic growth, not the recession predicted by Permabear and some partisan observers.
This issue is relevant to state fiscal policy, as revenues tend to follow cycles.
Why do we believe the U.S. economy is still expanding? Four reasons. There's also one possibility as to why the economy doesn't seem to be going well for many of our fellow Americans.
First, according to the U.S. Bureau of Economic Analysis, inflation-adjusted real gross domestic product grew at an annualized rate of 4.9% in the third quarter of 2023, supported by increased consumer spending. GDP increased Since the second quarter of 2020, when the two-month brief recession identified by the NBER committee (February to April 2020) ended, the economy has worsened in 11 out of 13 quarters.
The other reason is that three of the four concordance indicators are relied upon by the NBER, a nonpartisan organization founded in 1920 and recognized among economic experts as the arbiter of business cycles. . The four monthly coincident indicators are non-agricultural employment, real personal income excluding current transfers, real manufacturing and trade sales, and industrial production. The matching indicators indicate approximately the past state of the economy. In contrast, leading indicators try to look into the future. Features of the Federal Reserve Bank of St. Louis: One stop page Regarding these indicators.
How has their performance been since May last year? Three indicators are at high levels. These are employment, real personal income less transfers, and real manufacturing and trade industry sales. Combined with GDP, these are reasons to conclude that the economy is expanding.
One local implication is that national economic expansions tend to lead to state revenue surpluses, which decline during recessions.
According to the NBER, the average postwar U.S. economic expansion lasted 64.2 months. At 43 months, the existing expansion will be about two-thirds of normal. However, there are reasons to be cautious about that period. The fourth coincident indicator, industrial production, is slightly lower than last May. This is noteworthy because manufacturing is often the first sign of a recession.
Interest rates are also a factor. The government bond yield curve is inverted. A Fed study points out the importance of this curve as a precursor to a recession.
Finally, there is one possible explanation for the perception that this economic expansion is different from past periods of growth. While inflation is rising; census data It shows that median household income, adjusted for inflation, is decreasing.
Editor's note: Economist Greg Kaza Arkansas Policy Foundationis a market-based think tank founded in 1995. Opinions are those of the author.
