A team of researchers at Goldman Sachs say there is a 60% probability the recovery will last 10 years
Investors who worry that the U.S. economy is speeding toward another inevitable recession can relax: the likelihood that the recovery will continue is actually pretty good.
That is according to a team of researchers at Goldman Sachs Group, led by Chief Economist Jan Hatzius. The team analyzed a data set of developed-market business cycles and their findings were pretty interesting.
Among developed economies, the average length of an economic expansion has been expanding since 1950. The longest U.S. expansion lasted 10 years, from 1991 to 2001.
Before 1950, the average expansion lasted about three years, with only a few enduring for 10 years or more.
Since 1950, periods of expansion in developed markets have lasted an average of eight years—though the average in the U.S. over the same time has been around five years.
Goldman created a scatter plot of 255 expansions across 14 developed economies, depicted below:
The distribution of expansions durations is “fat tailed.” In other words, there have been many short expansions, but also many longer ones.
This implies that the current expansion, at six and 1/3 years old, will likely endure, Goldman says. The current expansion started in July 2009, according to the National Bureau of Economic Research.
The investment bank pegs the probability of the recovery enduring for another three and 2/3 years at 60%. That calculation only includes data from expansions after 1950.
The following chart outlines the probability of the recovery’s survival up to, and beyond, that 10-year milestone.
Goldman is careful to note that these probabilities represent a general picture—like an actuarial table of life expectancies. They shouldn’t be mistaken for a thorough analysis of the economy in its current state.
But the historical record is no doubt encouraging.
“Although there are clearly some risks to the US economy—especially from developments abroad—we do not expect the expansion to expire of old age,” the researchers said.
And the odds of a recession beginning over the next year are about 10% to 15%, according to the data.
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