What If This Turns Into A REALLY Long Boom?

Who is to say the economy can’t avoid another recession many experts expect to arrive between 2019 and 2021?

In May of last year, Goldman Sachs said the current expansion had a two-thirds chance of being the longest in U.S. history. Furthermore, other countries like England and Ireland have enjoyed far longer expansions dating from the early 1990s to the Great Recession.

But measuring this cycle against previous ones in terms of months may be a mistake, according to Jim McDonald of Northern Trust. The downturn and destruction of wealth during the Great Recession were so severe that a meaningful recovery was delayed for several years after 2009.

Many American homes remained under water until recently, and workers have not received hefty raises. Contractions in economic activity are typically caused by excesses in the system and, aside from Bitcoin, those are hard to find. It’s possible that a weak recovery could last a long time.

For this scenario to materialize, a lot of things would have to go right—or viewed another way, not get too much better.

Jim Paulsen, chief investment strategist at the Leuthold Group, notes that at 2.4%, the 10-year Treasury is within 25 basis points of its three-year high. The markets love 2% wage inflation, but they might be thrilled if that figure hit 3% in 2018. Oil prices also are approaching a three-year high. Finally, unemployment could soon approach a 50-year low while the S&P 500’s price-to-sales ratio nears the all-time record set in 2000.

If these and other indicators start “to breach important milestones,” Paulsen wonders whether they will also alter Wall Street’s complacent mind-set and cause a market correction at the very least.

That’s uncertain, but demographic developments over the next five years are crystal clear, and they will provide a sobering influence. Between now and 2023, peak earners and spenders aged 45 to 54 years old will decline from 13% to 12% of the population, according to David Rosenberg, the chief economist with Gluskin Sheff.

Meanwhile, the population over 70, which experiences the sharpest declines in income and spending, will rise from 10.5% to 12.5%. “Looking at data going back to 1920, it will be the first time there are more people over 70 than peak breadwinners aged 45 to 54,” Rosenberg wrote in early December. “This is likely to have a more powerful impact on spending, savings and inflation than any government attempt at tax reform.”