- The current US economic expansion appears poised to become the second longest on record.
- RBC Capital Markets says household spending could eventually make it the longest.
It’s now been close to nine years since the US was last in recession, leaving the current economic expansion poised to become the second longest on record should no nasty surprises arrive in the March quarter.
After such a long period without experiencing an economic downturn, only surpassed by the period between early 2001 to the onset of the global financial crisis, many are now pondering just how long it will last.
If this chart from RBC Capital Markets is anything to go by, households — the engine room of the US economy — look set to power the current expansion to the longest on record.
It shows household interest payments as a percentage of disposable income, overlaid against periods of recession in grey.
Even with a recent uptick, interest payments still remain incredibly low, sitting well below the levels that coincided with recessions in the past.
Tom Porcelli, chief US economist at RBC Capital Markets, says the evidence, at least based on this metric, suggests there’s still a lot of gas in the tank for consumers to power economic growth further.
“The fact that household re-leveraging remains exceptionally muted makes forecasting that the current expansion is likely to be the longest in recorded history far from heroic,” he says.
“From an interest cost standpoint, as a share of income, interest payments are well below the lows of every other cycle back to the early 1980s.”
Porcelli notes that previous economic downturns were usually preceded by a significant ramp-up in interest payments, something that, as yet, has not occurred on the same scale.
While overall household leverage remains low, with strengthening labour market conditions and recent tax cuts delivered to workers, Porcelli says it “increases the probability that households could all of a sudden become much more comfortable with the idea of leverage”.
“Thus, keeping an eye on household debt indicators will be paramount.”