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.

PROMOTED VIDEO
Arts and Entertainment
Neil Young performs on stage at Hyde Park
musicAnd his Hyde Park set has rhyme and reason, writes Nick Hasted
News
Women have been desperate to possess dimples like Cheryl Cole's
people Cole has secretly married French boyfriend Jean-Bernard Fernandez-Versini after just three months.
Arts and Entertainment
AKB48 perform during one of their daily concerts at Tokyo’s Akihabara theatre
musicJapan's AKB48 are one of the world’s most-successful pop acts
News
Ian Thorpe has thanked his supporters after the athlete said in an interview that he is gay
people
News
The headstone of jazz great Miles Davis at Woodlawn Cemetery in New York
news
Arts and Entertainment
Brendan O'Carroll has brought out his female alter-ego Agnes Brown for Mrs Brown's Boys D'Movie
filmComedy holds its place at top of the UK box office
News
ebookA unique anthology of reporting and analysis of a crucial period of history
News
newsBear sweltering in zoo that reaches temperatures of 40 degrees
Arts and Entertainment
Professor Kathy Willis will showcase plants from the Royal Botanic Gardens at Kew
radioPlants: From Roots to Riches has been two years in the making
Extras
indybestThe tastiest creations for children’s parties this summer
Arts and Entertainment
TV The follow-up documentary that has got locals worried
Arts and Entertainment
Paolo Nutini performs at T in the Park
music
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

Sales Executive - Central London /Home working - £20K-£40K

£20000 - £40000 per annum: Deerfoot IT Resources Limited: Sales Executive - Ce...

HR Advisor - 6 months FTC Wimbledon, SW London

£35000 - £40000 per annum + Benefits: Ashdown Group: HR Advisor - 6 Months Fix...

Information Security Manager (ISO 27001, Accreditation, ITIL)

£70000 per annum: Harrington Starr: Information Security Manager (ISO 27001, A...

Biztalk - outstanding opportunity

£75000 - £85000 per annum + ex bens: Deerfoot IT Resources Limited: Biztalk Te...

Day In a Page

Super Mario crushes the Messi dream as Germany win the 2014 World Cup in Brazil

Super Mario crushes the Messi dream

Germany win the 2014 World Cup in Brazil
Saharan remains may be evidence of the first race war, 13,000 years ago

The first race war, 13,000 years ago?

Saharan remains may be evidence of oldest large-scale armed conflict
Scientists find early warning system for Alzheimer’s

Scientists find early warning system for Alzheimer’s

Researchers hope eye tests can spot ‘biomarkers’ of the disease
Sex, controversy and schoolgirl schtick

Meet Japan's AKB48

Pop, sex and schoolgirl schtick make for controversial success
In pictures: Breathtaking results of this weekend's 'supermoon'

Weekend's 'supermoon' in pictures

The moon appeared bigger and brighter at the weekend
Iraq crisis: How Saudi Arabia helped Isis take over the north of the country

How Saudi Arabia helped Isis take over northern Iraq

A speech by an ex-MI6 boss hints at a plan going back over a decade. In some areas, being Shia is akin to being a Jew in Nazi Germany, says Patrick Cockburn
The evolution of Andy Serkis: First Gollum, then King Kong - now the actor is swinging through the trees in Dawn of the Planet of the Apes

The evolution of Andy Serkis

First Gollum, then King Kong - now the actor is swinging through the trees in Dawn of the Planet of the Apes
You thought 'Benefits Street' was controversial: Follow-up documentary 'Immigrant Street' has got locals worried

You thought 'Benefits Street' was controversial...

Follow-up documentary 'Immigrant Street' has got locals worried
Refugee children from Central America let down by Washington's high ideals

Refugee children let down by Washington's high ideals

Democrats and Republicans refuse to set aside their differences to cope with the influx of desperate Central Americas, says Rupert Cornwell
Children's books are too white, says Laureate

Children's books are too white, says Laureate

Malorie Blackman appeals for a better ethnic mix of authors and characters and the illustrator Quentin Blake comes to the rescue
Blackest is the new black: Scientists have developed a material so dark that you can't see it...

Blackest is the new black

Scientists have developed a material so dark that you can't see it...
Matthew Barzun: America's diplomatic dude

Matthew Barzun: America's diplomatic dude

The US Ambassador to London holds 'jeans and beer' gigs at his official residence – it's all part of the job, he tells Chris Green
Meet the Quantified Selfers: From heart rates to happiness, there is little this fast-growing, self-tracking community won't monitor

Meet the 'Quantified Selfers'

From heart rates to happiness, there is little this fast-growing, self-tracking community won't monitor
Madani Younis: Five-star reviews are just the opening act for British theatre's first non-white artistic director

Five-star reviews are just the opening act for British theatre's first non-white artistic director

Madani Younis wants the neighbourhood to follow his work as closely as his audiences do
Mrs Brown and her boys: are they having a laugh?

Mrs Brown and her boys: are they having a laugh?

When it comes to national stereotyping, the Irish – among others – know it can pay to play up to outsiders' expectations, says DJ Taylor