The Long Expansion Continues

The Bureau of Economic Analysis announced yesterday that U.S. real GDP grew at a 2.6% annual rate in the fourth quarter of 2018. That’s below the 3.1% average for the U.S. economy over the last 70 years, but better than the 2.2% average rate since the recovery from the Great Recession began in 2009:Q3.

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Real GDP growth at an annual rate, 1947:Q2-2018:Q4, with the 1947-2018 historical average (3.1%) in blue and post-Great-Recession average (2.2%) in red.

One can also look at the year-over-year growth rate, which smoothes out some of the measurement error in the quarterly growth numbers. This climbed throughout 2018, and we ended the year with the highest year-over-year growth rate since 2015:Q2.

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Top panel: quarter-to-quarter real GDP growth, quoted at an annual rate, 2009:Q4 to 2018:Q4. Bottom panel: year-over-year real GDP growth. Vertical lines denote first-quarter observations.

The solid growth numbers kept the Econbrowser Recession Indicator Index at 1.5%, among the lowest levels we ever see. That means the U.S. economic expansion has now been underway for 9-1/2 years, 2 quarters shy of the longest expansion on record (1991:Q2-2001:Q1).

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GDP-based recession indicator index. The plotted value for each date is based solely on information as it would have been publicly available and reported as of one quarter after the indicated date, with 2018:Q3 the last date shown on the graph. Shaded regions represent the NBER’s dates for recessions, which dates were not used in any way in constructing the index, and which were sometimes not reported until two years after the date.

It was encouraging to see nonresidential fixed investment make a positive contribution to both Q4 and year-over-year growth. That’s a key cyclical contributor in a typical expansion and also provides the basis for future productivity growth.

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