The U.S. economy had a good year. Despite numerous pronouncements that a recession was around the corner, the U.S. enjoyed strong growth in jobs and output. Economic output is on track to grow by 2.3 percent in 2019, compared to 2.5 percent in 2018. Approximately 180,000 new jobs per month were created in 2019, compared to approximately 223,000 new jobs per month in 2018. Inflation was low, at 1.7 percent.
The current expansion has lasted 10.5 years, with the National Bureau of Economic Research’s “Business Cycle Dating Committee” estimating that the Great Recession ended in June, 2009. The average economic expansion has lasted approximately 58 months since the end of World War II, or just under five years. In fact, the current expansion is now the longest economic expansion on record, surpassing the expansion that lasted 120 months, from March 1991 to March 2001.
Just because this is a record-long expansion does not mean the U.S. is due for a recession. Australia, for instance, has gone over 27 years since their last recession, with their last one ending in September 1991. There is no reason why this can’t be the case for the U.S., as well.
The most common cause of a U.S. recession is a sudden increase in the price of crude oil. For instance, the Middle Eastern oil embargo largely caused the 1973-75 recession. An increase in the price of crude oil due to the Iranian Revolution contributed to the 1980 recession while the oil well fires following the Iraqi withdraw from Kuwait contributed to the 1991 recession. There was also a sharp increase in the price of oil prior to the Great Recession. Oil is unlikely to cause the next recession, given that the U.S. is now a net exporter of crude oil.
Asset price bubbles popping is another historic cause of recessions. The 2001 recession was caused by a sudden decrease in the stock market following the “dot com” bubble popping, while the Great Recession was caused by the housing bubble popping. It does not appear that there are similar asset bubbles in today’s economy. Thus, the most likely case for 2020 is another year of solid growth.
That does not mean that everything is rosy for the U.S. economy – prosperity remains unevenly distributed. Americans without college degrees living in rural areas are not doing so well. The cost of healthcare remains problematic. The U.S. budget deficit reached nearly $1 trillion and will continue to increase; neither Congress nor the President has shown any interest in getting it under control. Given how dysfunctional our political institutions are, it’s not clear they could even if they wanted to. This presents a long-term risk because if the government exhausts its ability to borrow, the results would be catastrophic. These are all persistent, long-term concerns, though they get more pressing with every year that passes. But absent some unforeseen event, the U.S. economy should continue to grow into 2021.