ABA Banking Journal - June 2014 - (Page 8)

the economy BY MARK VITNER Not too young, not too old While the current expansion is five years BUSINESS CYCLE LENGTHS old, many feel the economy is still in recession because they have yet to see Months Expansion improvement in their own job and income 120 End of WWII Current prospects. The lack of improvement in the labor market is evident in a variety of measures, including the still-large number 80 of long-term unemployed and the much Post-war average larger-than-usual number of people working part-time who say they want full-time 40 jobs. The elevated level of job insecurity also is evident in the still-low levels of consumer confidence, and is a major reason 0 why household formation and home sales have remained lackluster over the past few Recession -40 years. From this perspective, economic expansion still looks young. An expansion reaching its 60th month, as this one did in May, is anything but young. Average expansion length-the and drawing job seekers back into the time between recessions-since World War II is 59 months. Some have been labor market. shorter and others have been longer. The last three expansions lasted an average Even our optimism has limits. of seven and one-half years, while the longest expansion in recorded U.S. history The improvement in job and income was ten years. growth over the next couple of years Expansions do not die of old age. Recessions typically come about due to a will likely be subtle, which is a good rapid unwinding of imbalances that have built up in the economy, which typithing, as it will help keep inflation and cally follow some sort of monetary or fiscal policy mistake, or some sort of mashigher interest rates at bay for as long sive exogenous shock. Given the sluggish recovery in the labor market and housas possible. However, interest rates ing sector, as well as the absence of inflationary pressures, the recovery still more will rise over the forecast horizon, closely resembles an economy in its adolescence than one that is about to face a and the risk will likely remain, at least midlife crisis or the bitter medicine of an overly tight monetary policy or fiscal slightly, stacked toward the high side. overkill. While imbalances may be building up in the technology arena, the oil For the balance of this year, conpatch and apartment markets are still at a point that will more than likely build sumer spending and business investfurther than suddenly unwind. Growth is more likely to strengthen than weaken. ment are expected to gradually While we do not see the economy approaching a new state of nirvana, we strengthen, while homebuilding and believe the next three years could prove to be the best three consecutive years of commercial construction gradually economic growth for this decade. Admittedly, it is a low bar and our optimism gain momentum. Government will may seem a stretch coming on the heels of an unexpectedly weak first quarter. shift from a modest drag on growth to However, within the first quarter's meager growth, we see a vastly improved a modest positive influence. mix of economic growth, including modest gains in long-suffering sectors, such as single-family residential construction, durable goods manufacturing, nonMark Vitner is senior economist at residential construction, and state and local governments. The improvement Wells Fargo Securities (www. in these sectors is creating a better job mix that is bolstering income growth wellsfargo.com/economics). 8| ABA BANKING JOURNAL | JUNE 2014 PHOTOS: SHUTTERSTOCK.COM Source: National Bureau of Economic Research http://www.wellsfargo.com/economics http://www.wellsfargo.com/economics

Table of Contents for the Digital Edition of ABA Banking Journal - June 2014

Chairman's View
Editor's Column
The Economy
Bank Notes
Picture This
Affordable housing pioneer
Pass the Aspirin
Tech Topics
Lines of defense
Top performing community banks
Compliance Clinic
Compliance Inbox
Around the ABA
Legal Issues
First Person

ABA Banking Journal - June 2014

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