Politics & Policy

Expansion, Year Seven

U.S. employers are still hiring and the American consumer is still spending.

Last Friday’s employment report, like the latest GDP reading, is more bad news for bears, partisan and perpetual. Payrolls increased by 94,000 in November, led by gains in professional and business services. According to the U.S. Bureau of Labor Statistics, nonfarm payrolls have now expanded for 51 consecutive months. As for GDP, it grew at a robust annual rate of 4.9 percent in third quarter, marking the 24th consecutive quarter of economic expansion. According to the U.S. Bureau of Economic Analysis, this robustness was tied to accelerations in personal consumption and exports.

Bottom line: U.S. employers are still hiring and the American consumer is still spending.

But there’s a bigger picture at work here. Amid the flurry of recent good economic news is that fact that the U.S. economy — fueled by the Bush tax cuts and monetary stimulus — has just entered its seventh year of expansion. An expansion that began in November 2001 is currently in its 73rd month, a fact you are unlikely to hear on the evening news. It passed the post-war average of 57 months last year and is surpassed in duration by only three post-war expansions: 1961–69, 1982–90, and 1991–2001.

Relatively speaking, the post-war business cycle that many of us grew up with tended to be short in duration. All told, seven of these expansions were shorter than the current expansion: One (1981–82) lasted one year, another (1958–60) held on for two years, and three more (1945–48, 1954–57, and 1970–73) never lived to see their fourth year.

Times have changed. Tax rates have lowered in a secular way. Inflation is now a controlled phenomenon. And the business cycle has strengthened and lengthened as a result.

The U.S. economy’s more recent resiliency is underscored by the challenges it has faced and overcome. These include a dot-com stock market bubble that imploded, the terrorist attacks of September 11, corporate accounting scandals, armed conflict in the Middle East, natural disasters such as hurricanes Katrina and Rita, a sub-prime mortgage crisis, and exogenous shocks that have caused commodity prices from gold to oil to triple in price.

All this, and six unbroken years of expansion.

The Bush tax cuts, it turns out, did not wreck the U.S. economy as the partisans predicted time and again. Rather, they ensured its hardiness. This is not to say that another recession will never occur. There is a business cycle, and expansions are followed by contractions. The current expansion will eventually end like all previous periods of growth. But when that day comes it won’t be the result of tax cuts.

President Bush said it succinctly in Little Rock in 2003: “The best way to get this economy growing is to let you have more of your own money so you can spend on a good or a service. And when you do, it’s going to make it more likely somebody is going to find work.”

Expansion year seven is a reminder that this policy still works.


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