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US Economy Is Gaining Momentum

J: In an amazing and surprising development for most economic forecasters (but not me), the US economy has picked up speed in nearly all measures of economic growth. We have not seen such an occurrence since the record expansion of March 1991-March 2001, a full ten-year period (120 months) of growth. In that expansion, real GDP growth shot up from 2.9 percent at a seasonally adjusted annual rate in the first quarter of 1996 to a whopping 7.2 percent in the second quarter and did not fall below 3.0 percent again until the first quarter of 2000. That's a string of fifteen quarters of very strong real GDP growth.

At the moment, we have posted two such consecutive quarters. (L: Not quite fifteen, eh? But ya gotta start your streak sometime!) If the fourth quarter exceeds 3.0 percent (the Atlanta Fed GDP Now estimate is 3.4 percent as of November 17), it will be the first time since the fourth quarter of 2004 we have had three such consecutive quarters of real GDP growth. (L: Good grief, I know this expansion has been pitiful, but 2004?)

If the first quarter of 2018 exceeds 3.0 percent again (my forecast), that will be the first time such an event has happened since the first quarter of 2005. If the second quarter of 2018 beats 3.0 percent (also my forecast), it will be the first time since the third quarter of 1997.

Employment and disposable personal income and retail sales are all at record levels and rising. The unemployment rate in October was the lowest since December 2000. We are likely headed to the lowest unemployment rates we have seen since the 1960s. (L: Which is not all good. But it should put pressure on wages so maybe we'll see wages increase--finally.) Here's a chart that shows the civilian unemployment rates since 1948.

The Congress looks likely to pass serious reductions in the tax burden for 2018. (L: If only they could manage to pass something that does not totally mess with non-profits and not increase the federal deficit, though apparently that is asking too much.) That will boost growth and extend the expansion. (L: At least until 2025, when the proposed cuts expire--or dramatically increase the deficit.)

In April 2018 the current expansion will pass the February 1961 to December 1969 (106 months) expansion to move into second place in a history that stretches back to December 1954. When we get to July 2019 with continued economic growth (my forecast), we will pass that record-holding 120-month expansion.

My expectation is we will continue to see good economic news for at least three more years. If we get an inverted Treasury yield curve in mid- to late-2020, thanks to our friends on the Federal Open Market Committee (FOMC), then we'll get a recession in 2021.

That's a lot of time for good economic news to dominate the headlines. That's my forecast. Enjoy watching what happens.

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