Economy

For the first time in history, the US economy has started and ended a decade without a recession

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Key Points
  • For the first time ever, the U.S. economy started and ended an entire decade without entering a recession.
  • It’s been the longest expansion in the country’s history.
  • But overall economic growth during this decade has been slower compared to previous booms.

There's a saying among economists that "expansions don't die of old age."

In the case of the American economy over the past decade, it rings true.

As of December, the U.S. economy has expanded for a record 126 straight months, the longest time period in the country's history according to the National Bureau of Economic Research. Put another way, the U.S. has avoided a recession for an entire calendar decade for the first time ever.

"It is unusual that this has been such a persistent recovery," Michelle Meyer, chief U.S. economist at Bank of America Merrill Lynch, told CNBC.

Starting at a low

Economists cite a few reasons for why the expansion has lasted for so long. For one, the U.S. was coming from a low point at the end of the last decade. Much of the expansion over the past ten years has been spent recovering from the Great Recession.

"It's almost hard to imagine how awful that time was," said David Wilcox, former director of the Division of Research and Statistics at the Federal Reserve Board and a current senior fellow at the Peterson Institute.

Job growth, for example, has recovered more slowly than in previous economic booms, in part because unemployment was so high during the financial crisis. As some economists have said, the deeper the hole, the longer it takes to climb out.

Record stimulus

Overall, economic expansions have started to last longer in the post-war period. The NBER, which keeps the official tally of recessions in the U.S., found expansions have lasted an average of 58.4 months from 1945 to 2009, compared to 35 months from 1919 to 1945. One reason for this, economists say, is that policymakers have gotten better at responding to changes in the economy while inflation has remained subdued.

Wilcox, who was a senior advisor to Federal Reserve Chairs Ben Bernanke, Janet Yellen and Jerome Powell, said stimulus efforts from policymakers during the financial crisis, like quantitative easing, were an important ingredient in fostering the length of the economic recovery today.

The Fed has kept borrowing rates low throughout the decade, gradually raising them from the end of 2015 through 2018, only to cut quickly again in 2019 to try to fend off any uncertainty in the economy. The central bank's balance sheet sits at roughly $4 trillion, quadruple its size in 2008.

"Even today, a decade later, we're still running off some of the aftereffects of the extraordinary support that was put in place," Wilcox said.

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Fiscal stimulus during the crisis, such as the Troubled Asset Relief Program (TARP) and the Economic Recovery Act, also helped sustain the U.S. economic recovery, according to Torsten Slok, chief economist at Deutsche Bank. Aggressive action from policymakers in the U.S. helps explains why the American economy has recovered faster than other advanced economies like Europe or Japan, he said.

"A very important reason why the U.S. has had such a long and very protracted expansion is that U.S. fiscal policy and monetary policy, being the Federal Reserve and politicians, were much quick out of the box in terms of supporting the economy," Slok said.

Longest not strongest

Another reason economists say the expansion has lasted so long is that the memory of the crisis is still fresh in the minds of consumers and businesses, making them more risk-averse and alert to the next downturn.

"In this expansion, we never really got going, we don't have that over-building problem, we don't have over-leverage in general," said Mark Zandi, Moody's Analytics Chief Economist.

This caution has meant there are fewer imbalances in the financial system, which has helped the recovery go on for longer. But it has also been a factor contributing to weaker economic growth over the past decade. Despite shattering records in longevity, GDP growth has been much slower during this expansion than in previous booms.

"At this point there's not much of an overshoot in terms of economic growth which means that the cycle can continue," BofA's Meyer said.

There are still risks that could derail the longest expansion ever. Record low interest rates, for example, have fueled record high debt levels.

"A lot of discussions in financial markets about whether the expansion can continue or not is all about: are we vulnerable in the expansion because of student debt being so high, vulnerable in the expansion because of corporate debt being so high?" Slok said.

Other headwinds include political and trade uncertainty and weakness overseas. Wealth and income inequality are also raising alarms among investors and politicians.

Some hope that, as long as policymakers stay alert, the U.S. can continue to shatter records.

"Recessions are usually policy mistakes," said Josh Bivens, director of research at the Economic Policy Institute. "We really can keep these recoveries going for quite a long time if we have really careful smart policy."

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