Eight years and the US boom goes on

The very scale of the achievement raises inevitable questions of `why?' and `how long?'

LET'S START with a celebration, for today we will receive the news that the US economy has just completed eight years of uninterrupted growth. We get the first estimate of GDP for the January/March quarter, which will be positive, of course - though perhaps not at the heady rate of the last quarter of 1998. This expansion is currently still a few months short of the record one of the 1960s, but there is surely enough momentum to carry it on through the rest of this year so it should at least match the previous record.

It is an astounding achievement, all the more so because the last two years have seen the US driving on swiftly into the headwind of sharp recession in east Asia and relative stagnation in much of continental Europe. The very scale of the achievement raises inevitable questions of "why?" and "how long?"

For the "why?" I'm grateful to some work by the Conference Board, a US research group which has developed its own index of leading indicators covering the labour market, manufacturing, household and financial indicators. Its conclusion, looking at the signals that this gives and applying the appropriate lags, is that there is very little danger of recession this year, less in fact than there has been at several earlier stages in the expansion (see graph).

The strongest driver of this index - the key thing which gives the Conference Board the confidence that the US outlook is secure - is finance. Low short- term interest rates and plentiful liquidity should enable the expansion to carry on, since there has been no recession since the Second World War which has not been preceded by a sharp rise in interest rates. So providing this congruence of low interest rates, rapid growth in money supply and rising asset prices continues, all seems set fair.

Meanwhile, consumers have found their confidence bolstered by the rising value of their share portfolios and their houses. Last year personal income rose by 4 per cent, the largest increase in the 1990s. There was a rise in the number of people in work and in the number of hours people worked, as well as wage increases in the 4-4.5 per cent region. So people keep will keep spending (right-hand chart), and while they do so the US economy will remain bullet-proof.

If it is relatively easy to answer the "why?" question, what about the "how long?".

Trying to answer that becomes a bit like an exercise in rounding up the usual suspects. There are a number of different things that might end the expansion and we know what they are. The problem is to know which ones will break cover and show themselves to the world.

Start with the obvious. There are, first, three things which would put pressure on consumer spending: a rise in inflation and interest rates, a rise in unemployment, and a fall in share prices. We know enough about the history of economic cycles to know that all are not just possible but - sooner or later - inevitable.

The only real issue is whether, when this clutch of negatives comes along, they will show themselves in a benign or a malevolent form. If benign, we get a period of below-trend growth which enables the economy to rebuild some slack without actually going into recession. If malevolent, then recession looms.

Aside from these direct influences on US domestic consumption, there are also potential external influences. Were the euro to attract a little more confidence, there could be a gradual switch of assets away from the dollar. A falling dollar might in the long run help US exports and help demand that way, but it would put pressure on US interest rates because of the impact on prices.

One of the main reasons why US price performance has been so impressive is because of the combination of a strong dollar and low commodity prices. The commodity price cycle may possibly have turned (the oil cycle seems to have done so), and at some level eventually the dollar cycle will turn. When it does, inflation will re-emerge.

Beyond that sort of probably gradual change, there is the chance of an external shock: something that suddenly changes the mood of the world economy. The most obvious candidate is the millennium bug or Y2K: either actual disruption because of computer failures around the turn of the year or feared disruption.

Such is the way of the world, that usually it is the thing you don't foresee which will bite you in the backside. The one absolutely certain thing that can be said about the Y2K problem is that it has not just been foreseen; we have been bored almost to destruction by it. I suppose the most sensible thing to say about Y2K is simply that the millennium comes at an awkward time in the global economic cycle.

But all this is to carp. Sure, the macro-economic discussion about the long American boom has to look towards its eventual end, but to focus on the macro-numbers is to ignore the qualitative aspects of this particular expansion, the things which make it different from the others.

It will be another three or four years before we can hope to see this boom in any perspective, but however it ends - whether with a squeak or a bang - the new element will always be the way it has been influenced by the communications technology of the Internet. If we are in the latter stages of the expansion we are still in the very early stages of the exploitation of this new technology.

It is overwhelmingly an American phenomenon, in the sense that it has been in the States where the potential applications have been most rapidly exploited. The latter stages of this boom have been overwhelmingly technology- driven.

Every boom is different, and this one is no exception. My guess is that it will indeed just surpass the 1960s expansion in its longevity, but the thing it will be remembered for will not be that: it will be the way it spawned a new technology which gives a glimpse of the future.

Start your day with The Independent, sign up for daily news emails
Arts and Entertainment
Lou Reed distorted the truth about his upbringing, and since his death in 2013, biographers and memoirists have added to the myths
musicThe truth about Lou Reed's upbringing beyond the biographers' and memoirists' myths
News
people
News
Ed Miliband received a warm welcome in Chester
election 2015
Life and Style
Apple CEO Tim Cook announces the Apple Watch during an Apple special even
fashionIs the Apple Watch for you? Well, it depends if you want it for the fitness tech, or for the style
ebooks
ebooksA special investigation by Andy McSmith
  • Get to the point
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

SThree: Trainee Recruitment Consultant

£20000 - £25000 per annum + OTE £45,000: SThree: SThree Group have been well e...

Ashdown Group: IT Manager / Development Manager - NW London - £58k + 15% bonus

£50000 - £667000 per annum + excellent benefits : Ashdown Group: IT Manager / ...

Recruitment Genius: Sales Consultant / Telemarketer - OTE £20,000

£13000 - £20000 per annum: Recruitment Genius: Scotland's leading life insuran...

Ashdown Group: Training Programme Manager - City, London

£40000 - £45000 per annum + benefits : Ashdown Group: Training Programme Manag...

Day In a Page

NHS struggling to monitor the safety and efficacy of its services outsourced to private providers

Who's monitoring the outsourced NHS services?

A report finds that private firms are not being properly assessed for their quality of care
Zac Goldsmith: 'I'll trigger a by-election over Heathrow'

Zac Goldsmith: 'I'll trigger a by-election over Heathrow'

The Tory MP said he did not want to stand again unless his party's manifesto ruled out a third runway. But he's doing so. Watch this space
How do Greek voters feel about Syriza's backtracking on its anti-austerity pledge?

How do Greeks feel about Syriza?

Five voters from different backgrounds tell us what they expect from Syriza's charismatic leader Alexis Tsipras
From Iraq to Libya and Syria: The wars that come back to haunt us

The wars that come back to haunt us

David Cameron should not escape blame for his role in conflicts that are still raging, argues Patrick Cockburn
Sam Baker and Lauren Laverne: Too busy to surf? Head to The Pool

Too busy to surf? Head to The Pool

A new website is trying to declutter the internet to help busy women. Holly Williams meets the founders
Heston Blumenthal to cook up a spice odyssey for British astronaut manning the International Space Station

UK's Major Tum to blast off on a spice odyssey

Nothing but the best for British astronaut as chef Heston Blumenthal cooks up his rations
John Harrison's 'longitude' clock sets new record - 300 years on

‘Longitude’ clock sets new record - 300 years on

Greenwich horologists celebrate as it keeps to within a second of real time over a 100-day test
Fears in the US of being outgunned in the vital propaganda wars by Russia, China - and even Isis - have prompted a rethink on overseas broadcasters

Let the propaganda wars begin - again

'Accurate, objective, comprehensive': that was Voice of America's creed, but now its masters want it to promote US policy, reports Rupert Cornwell
Why Japan's incredible long-distance runners will never win the London Marathon

Japan's incredible long-distance runners

Every year, Japanese long-distance runners post some of the world's fastest times – yet, come next weekend, not a single elite competitor from the country will be at the London Marathon
Why does Tom Drury remain the greatest writer you've never heard of?

Tom Drury: The quiet American

His debut was considered one of the finest novels of the past 50 years, and he is every bit the equal of his contemporaries, Jonathan Franzen, Dave Eggers and David Foster Wallace
You should judge a person by how they peel a potato

You should judge a person by how they peel a potato

Dave Hax's domestic tips are reminiscent of George Orwell's tea routine. The world might need revolution, but we like to sweat the small stuff, says DJ Taylor
Beige is back: The drab car colours of the 1970s are proving popular again

Beige to the future

Flares and flounce are back on catwalks but a revival in ’70s car paintjobs was a stack-heeled step too far – until now
Bill Granger recipes: Our chef's dishes highlight the delicate essence of fresh cheeses

Bill Granger cooks with fresh cheeses

More delicate on the palate, milder, fresh cheeses can also be kinder to the waistline
Aston Villa vs Liverpool: 'This FA Cup run has been wonderful,' says veteran Shay Given

Shay Given: 'This FA Cup run has been wonderful'

The Villa keeper has been overlooked for a long time and has unhappy memories of the national stadium – but he is savouring his chance to play at Wembley
Timeless drama of Championship race in league of its own - Michael Calvin

Michael Calvin's Last Word

Timeless drama of Championship race in league of its own