Q & A

How long is the current economic expansion?

At the end of November 1999, the current economic expansion in the U.S. was 104 months old. It began April 1991, and we have experienced no negative quarters in real GDP (gross domestic product) growth since then.

Is this the longest expansion in U. S. history?

If real growth continues through the first quarter of 2000—and all indications are that it will—the current boom will surpass that of the 1960s and become the longest expansion in U.S. history.

Is the business cycle gone forever?

Probably not. Historical evidence clearly indicates that market economies have suffered business cycle fluctuations and that periods of good times, or expansions, are interspersed with periods of recessions—sometimes mild, sometimes severe.

What has caused the current economic boom?

The productivity of our nation's workers has grown faster during the last few years than it had for more than the two previous decades. Meanwhile, the end of the Cold War has permitted the U.S. government to redeploy its expenditures away from defense and toward other productive ventures. In the process, we've shifted from a budget deficit to a budget surplus, releasing resources into the private sector. Finally, good monetary policy, measured by an inflation rate that has been both low and stable by historical standards, has contributed to an economic environment that allows markets to work efficiently.

Having experienced such a long expansion, should we expect recession around the corner?

If you're asking "Do economic expansions die of old age?" the statistical evidence on this question is "no." Suppose you flip a coin five times, and it comes up heads each time. What is the probability of flipping heads on the sixth try? The answer is 50 percent—the first five heads have no influence on the current coin toss. Similarly, the fact that our economy has expanded for several years in a row does not increase the odds that we will enter a recession next year. Careful statistical analysis shows that economic fortunes do not depend on the length or timing of past expansions. They depend instead on stable prices and low inflation.

The content for Q & A was adapted from "How Long Can the Expansion Continue?" by William Poole, President and CEO of the Federal Reserve Bank of St. Louis, and appeared in the October 1999 issue of The Regional Economist, a St. Louis Fed publication.

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