Rational Exuberance - The Equitile Blog

12th February 2019

Posted by: Andrew McNally

Growth won’t die of old age

Our recent posting, Beware the Mean Reversionists, showed how the current US growth spurt is unremarkable in terms of its longevity or impact and, even if it was an outlier, the current growth rate itself is average by historic standards. Of all 283 twelve-month rolling growth rates since 1948, the current run-rate is about midway.


When economies do slow dramatically it’s often down to debt. When households and companies overstretch themselves, they effectively experience an economic exhaustion. Growth slows when the private sector comes to realise it’s overspent and over-indebted.


When we look at the headline numbers in this respect, we are reassured. The US private sector is not as indebted relative to GDP as it was before the Global Financial Crisis.

Moreover, although some pundits have pointed to historically low unemployment as a limit to growth, there’s room for optimism.

The recession after the financial crisis, for a myriad of reasons, kicked a high number of participants out of the jobs market – a fall too steep to be driven by demographics alone. It’s not unreasonable, therefore, to assume that the participation rate - the percentage of the civilian population that make themselves available for work - could pick up meaningfully from here.

The global economic backdrop isn’t providing a tail-wind for the US right now, but headline data in the US at least doesn’t suggest the current growth spurt will die of old age.

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8th February 2019

Posted by: Andrew McNally

Has the US economy peaked? – Beware of Mean Reversionists

We’ve heard it said a lot recently that the US economy has peaked and, although the world isn’t without challenges, much of this argument hangs on the simple view that it’s had such a good run of late, what goes up must come down.

The Mean Reversionists, as we call them, generally assume that the longer the period of unbroken growth, the more likely it is to break.

We’ve looked at the numbers and, even if the Mean Reversionists are correct, the current US growth spurt really isn’t that remarkable in terms of either length or magnitude.

This chart shows US real GDP since 1947, with the duration of growth spurts (in quarters) on the horizontal axis and the increase in GDP (rebased to 100) on the vertical.

Given the economy stalled briefly at the start of 2014, the current period of unbroken growth (the blue line) is neither mature nor profound by historic standards.

To be fair the decline in 2014, as in 2011, was extremely small so being less purist with the data we also show the period from the end of the Global Financial Crisis to now (the dashed line). Although this growth spurt has a few grey hairs, it’s been very anemic by historic standards in terms of cummulative growth.

We’ll address some of the broader challenges in later blogs but for the Mean Reversionists, at least, the data doesn’t back up their argument.

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