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Goldman Sachs: The U.S. Expansion Ain't Dead. It's Not Even Old

Five years is the average length of an economic expansion in the U.S. since World War II. The one we’re in now began in July 2009—just over five years ago. That fact alone suggests that the U.S. is about to roll over into another recession. “The September 2014 recession?” is the headline on a blog post this week by Antonio Fatas, an economist at Insead business school and Georgetown University’s McDonough School of Business. (To be sure, Fatas isn’t actually saying that will happen.)

Today Goldman Sachs published a client note by economist Kris Dawsey called “Don’t Call the Expansion Old.” It argues that rather that being in its late stage, the expansion is “early- to mid-cycle.” Dawsey writes that “expansions do not die of old age” but rather are killed, and there are no expansion-killers in view. There’s no inflationary overheating, so the Federal Reserve doesn’t need to jack up interest rates to cool off growth, which can sometimes precipitate a recession. And there are no severe financial imbalances, such as the housing bubble and household overborrowing that killed the last expansion, he writes.
 
The Goldman paper’s main contribution is to break down the phases of the business cycle using a data-mining technique called k-means clustering that spots patterns in vast quantities of raw information. It takes 15 factors, ranging from the volatility of stock prices to the number of unemployed people per job opening and looks at how they have performed in the past. It finds their ups and downs tend to cluster together into four phases, which Dawsey labels recession, early cycle, mid-cycle, and late cycle.