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.

Arts and Entertainment
Gregg Wallace in Summer's Supermarket Secrets
tv All of this year's 15 contestants have now been named
Sport
The giant banner displayed by Legia Warsaw supporters last night
football Polish side was ejected from Champions League
Arts and Entertainment
Could we see Iain back in the Bake Off tent next week?
tv Contestant teased Newsnight viewers on potential reappearance
Life and Style
A picture taken on January 12, 2011 shows sex shops at the Paris district of Pigalle.
news
PROMOTED VIDEO
News
i100(and it's got nothing to do with the Great British Bake Off)
News
Angelina Jolie with her father Jon Voight
peopleAsked whether he was upset not to be invited, he responded by saying he was busy with the Emmy Awards
News
Bill Kerr has died aged 92
peopleBill Kerr appeared in Hancock’s Half Hour and later worked alongside Spike Milligan and Peter Sellers
News
news It's not just the world that's a mess at the moment...
Sport
footballPremiership preview: All the talking points ahead of this weekend's matches
News
Keira Knightley poses topless for a special September The Photographer's issue of Interview Magazine, out now
people
News
ebooksAn evocation of the conflict through the eyes of those who lived through it
Voices
The Ukip leader has consistently refused to be drawn on where he would mount an attempt to secure a parliamentary seat
voicesNigel Farage: Those who predicted we would lose momentum heading into the 2015 election are going to have to think again
Arts and Entertainment
Cara Delevingne made her acting debut in Anna Karenina in 2012
film Cara Delevingne 'in talks' to star in Zoolander sequel
News
i100
Sport
Mario Balotelli pictured in his Liverpool shirt for the first time
football
Life and Style
tech
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

Data Scientist (SQL,Data mining, data modelling, PHD, AI)

£50000 - £80000 per annum + benefits+bonus+package: Harrington Starr: Data Sci...

SAS Business Analyst - Credit Risk - Retail Banking

£450 - £500 per day: Orgtel: SAS Business Analyst, London, Banking, Credit Ris...

Project Manager - Pensions

£32000 - £38000 Per Annum Bonus, Life Insurance + Other Benefits: Clearwater P...

KYC Analyst, Birmingham - £200-£250 p/d

£200 - £250 per day + competitive: Orgtel: KYC Analyst, Key Banking Client, Bi...

Day In a Page

Ukraine crisis: The phoney war is over as Russian troops and armour pour across the border

The phoney war is over

Russian troops and armour pour into Ukraine
Potatoes could be off the menu as crop pests threaten UK

Potatoes could be off the menu as crop pests threaten UK

The world’s entire food system is under attack - and Britain is most at risk, according to a new study
Gangnam smile: why the Chinese are flocking to South Korea to buy a new face

Gangnam smile: why the Chinese are flocking to South Korea to buy a new face

Seoul's plastic surgery industry is booming thanks to the popularity of the K-Pop look
From Mozart to Orson Welles: Creative geniuses who peaked too soon

Creative geniuses who peaked too soon

After the death of Sandy Wilson, 90, who wrote his only hit musical in his twenties, John Walsh wonders what it's like to peak too soon and go on to live a life more ordinary
Caught in the crossfire of a cyber Cold War

Caught in the crossfire of a cyber Cold War

Fears are mounting that Vladimir Putin has instructed hackers to target banks like JP Morgan
Salomé's feminine wiles have inspired writers, painters and musicians for 2,000 years

Salomé: A head for seduction

Salomé's feminine wiles have inspired writers, painters and musicians for 2,000 years. Now audiences can meet the Biblical femme fatale in two new stage and screen projects
From Bram Stoker to Stanley Kubrick, the British Library's latest exhibition celebrates all things Gothic

British Library celebrates all things Gothic

Forthcoming exhibition Terror and Wonder: The Gothic Imagination will be the UK's largest ever celebration of Gothic literature
The Hard Rock Café's owners are embroiled in a bitter legal dispute - but is the restaurant chain worth fighting for?

Is the Hard Rock Café worth fighting for?

The restaurant chain's owners are currently embroiled in a bitter legal dispute
Caribbean cuisine is becoming increasingly popular in the UK ... and there's more to it than jerk chicken at carnival

In search of Caribbean soul food

Caribbean cuisine is becoming increasingly popular in the UK ... and there's more to it than jerk chicken at carnival
11 best face powders

11 best face powders

Sweep away shiny skin with our pick of the best pressed and loose powder bases
England vs Norway: Roy Hodgson's hands tied by exploding top flight

Roy Hodgson's hands tied by exploding top flight

Lack of Englishmen at leading Premier League clubs leaves manager hamstrung
Angel Di Maria and Cristiano Ronaldo: A tale of two Manchester United No 7s

Di Maria and Ronaldo: A tale of two Manchester United No 7s

They both inherited the iconic shirt at Old Trafford, but the £59.7m new boy is joining a club in a very different state
Israel-Gaza conflict: No victory for Israel despite weeks of death and devastation

Robert Fisk: No victory for Israel despite weeks of devastation

Palestinians have won: they are still in Gaza, and Hamas is still there
Mary Beard writes character reference for Twitter troll who called her a 'slut'

Unlikely friends: Mary Beard and the troll who called her a ‘filthy old slut’

The Cambridge University classicist even wrote the student a character reference
America’s new apartheid: Prosperous white districts are choosing to break away from black cities and go it alone

America’s new apartheid

Prosperous white districts are choosing to break away from black cities and go it alone