Economic Impact: As economy gains, risk of recession seems slight

The current economic expansion that began in June 2009 is now in its 68th month. That makes it nine months longer than the average of the 11...

The current economic expansion that began in June 2009 is now in its 68th month.

That makes it nine months longer than the average of the 11 expansions that occurred between 1945 and 2009, although the last three expansions have lasted an average of 95 months.

Does the current expansion have the strength to continue or will the U.S. economy be heading into a recession?

The continued drop in the price of oil to less than $50 a barrel is occurring, in part, because of the increase in production in the United States and may reflect a drop in demand.

That drop in demand, some point out, is occurring because of weakness in Eurozone economies and a slowdown in growth in China.

Some observers point out that the global weakness will lead to less demand for U.S.-made goods and services, which will slow our growth.

With this scenario, it’s important to recognize that about 13 percent of U.S. gross domestic product came from exports compared with the prior year.

Deflation, which remains a real concern in the Eurozone, could contribute to weakness in their banking system. The most pessimistic analysts also see this impacting our economy, which could translate into a recession.

Those arguing for a recession might also point out that each of the three major stock indices fell about 3 percent early last week, which may signal a recession.

However, we’re not even close to a bear market, which is defined as a 20 percent drop in one of the major U.S. stock market indices. Even if we were, bear markets aren’t always accompanied by recessions.

Over the past 30 years, there have been five bear markets and three recessions.

Pointing toward continued expansion is real gross domestic product growth, which was revised up to a whopping 5 percent annualized rate in the third quarter of 2014. That’s the fastest pace since the third quarter of 2003 when GDP grew at a 6.9 percent annualized rate.

Third quarter growth comes on the heels of a 4.6 percent annualized pace in the second quarter that was partially a rebound from a contraction in the first quarter. The first quarter contraction was mostly attributable to severe winter weather.

Early results on holiday spending reflect a consumer that is loosening up their pocket books.

Of course, lower gas prices are supporting some of that spending. The increase in job hiring also is putting more money into the U.S. economy and creating the momentum to fuel further growth.

Increased demand causes businesses to hire more people and purchase more supplies and equipment which leads to more hiring and more economic growth.

From this perspective, we don’t expect the nation to dip into recession anytime soon.  In fact,we are looking for continued growth in the national economy to the tune of an increase of 3.4 percent in real gross domestic product in 2015 and 3.7 percent in 2016.

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