Economic Growth: More Stable

Hard to believe, but economic growth is and has been more stable than might have been imagined decades ago. Since 2010, trailing 12-month expansion of gross domestic product (GDP) peaked at 3.8% and troughed at 1.2%; a difference of only 2.6%. Last year growth was right in the middle of this range. During the prior four decades, the difference between the best and worst 12-month periods averaged nearly 9%. Here are the figures:

Decade Best 12 Month

GDP Growth

Worst 12 Month

GDP Growth

2010-2019 3.74% 1.22% 2.52%
2000-2009 5.15% -4.19% 9.34%
1990-1999 4.90% -0.93% 5.83%
1980-1989 8.29% -2.71% 11.00%
1970-1979 7.33% -2.34% 9.67%

Briefly, despite headlines, fears of various sorts, even the change of administrations, the most inclusive statistic of economic health indicates that we have been in a remarkably steady and enduring environment of moderate growth.

Will this continue? We cannot know; but we are fortunate to have an attentive Federal Reserve. In the middle of the financial crisis, the Fed dropped the target Fed Funds rate to about zero, keeping it there from December 2008 through December 2015. Amidst healthier activity, the Fed then began a series of rate increases which by December 2018 brought the target Fed Funds level to 2.5%. Early last year it was commonly thought the increases would continue. But the trade situation deteriorated and a number of industries showed disappointing performance, increasing fears of a theoretically long overdue recession. The Fed, though, reversed course and lowered rates between August and October.

Without the election, there are reasons to believe that 2020 could be a mirror image of 2019. Going into last year, there was optimism and the prospect of rising rates, but disappointment and growing fear dominated the second half. Going into this year, there is fear of recession and concern about impeachment, the election and the recent decline in manufacturing. But the Fed has taken action; trade deals have been signed; consumers are spending; and the job market is strong. This may translate into better than expected economic performance.

But, of course, there is an election; and markets can surprise in either direction. Interest rates may remain low, or not. There are statistics that indicate stocks are overvalued, and others that indicate there is room to run. We’re monitoring.

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