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How Has the U.S. Avoided a Recession for a Decade?

The U.S. economy hasn't had a recession in more than 10 years, which makes the current economic expansion the longest in the country's history. Economies have a lot of moving parts, which makes it difficult to pinpoint a single reason why the U.S. has dodged a recession for so long.

But there are a few likely reasons why the economy has been in growth mode for more than a decade. In this video from our YouTube channel, we take a look at how the economy's rebound from the Great Recession, slow and steady gross domestic product (GDP) growth, and ongoing stimulus from the federal government has kept the U.S. out of a recession.

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Narrator: Beginning in 2007, the United States began its worst recession in more than 80 years. The economic downturn, which came to be known as the Great Recession, was especially bad compared to recessions of the past.

Recessions come along every five years on average, but ever since the U.S. economy emerged from the Great Recession in June 2009 we haven't experienced another one.

So, how exactly has our economy avoided a recession for so long?

There's not exactly just one single answer for that question, so let's take a closer look at several moving parts of our economy to understand what's going on.

First, we need to define exactly what a recession is.

A recession is sometimes defined as two back-to-back quarters of negative gross domestic product, or GDP, growth. But official recessions are actually defined by the National Bureau of Economic Research, which defines them as:

"... A significant decline in economic activity spread across the economy, lasting more than a few months, normally visible in real GDP, real income, employment, industrial production, and wholesale-retail sales."

One of the reasons why the U.S. economy has avoided a recession for so long is because it's taken years for it to fully recover from the last recession.

For example, the unemployment rate skyrocketed to 10% during the Great Recession and it wasn't until 2016, about seven years after the recession ended, that the unemployment rate made its way back to a natural level, which the Federal Reserve says is between 4.1% and 4.7%.

Another reason for America's long recovery comes from the fact that the country's GDP has grown at a stable pace -- at an average about 2% since 2010 -- which is a good thing for the economy.

An economics professor at Harvard University, Dr. Robert Barro, recently told Markets Insider that,

"There has been no recession because the growth rate of real GDP has been remarkably stable, although at a low average rate."

GDP grew at 2.3% in 2019, which is within the range of 2% to 4% that most economists believe is a healthy rate of growth.

While it may seem counter-intuitive, slow and steady GDP growth can be far better for an economy, than rapid GDP growth.

Growth of 5% for example, would mean that the economy is running hot and investors are putting too much money in investments that probably won't pan out, creating what's known as an asset bubble.

When these asset bubbles pop, as the real estate bubble did leading into the Great Recession, they can wreak havoc on the stock market and the economy.

So, slow and steady growth is good, and it's basically what the U.S. economy has had for much of the past 10 years.

Of course, economic growth that's too slow isn't a good thing either, which brings us another reason why we haven't seen a recession in more than 10 years -- the government has been doing everything in its power to prevent one.

For example, the Bush Administration introduced the Troubled Asset Relief Program (TARP) program to help the financial markets and in 2008 and Obama Administration introduced the American Recovery and Reinvestment Act, with both government programs investing billions of dollars into the U.S. economy.

The Federal Reserve also bought trillions of dollars worth of government bonds and other assets during the Great Recession, in a program known as quantitative easing.

This long period of stimulus not only helped the U.S. economy grow, but it also contributed to the country's long recovery.

And the federal government is still doing everything in its power to avoid another recession.

President Trump introduced new tax cuts for corporations and individuals, aimed at spurring new economic growth.

And the Federal Reserve has both raised and lowered interest rates over the past few years, to help stabilize the economy.

The Fed adjusts interest rates as an attempt to control inflation. Just like with GDP, some inflation is good, but too much or too little inflation can be a bad thing.

Tax cuts, government stimulus, and adjusting interest rates aren't perfect tools for economic growth, but they have all helped -- to varying degrees -- keep the U.S. economy from sliding back into a recession over the past decade.

The bottom line is that recessions are a normal part of our economy and predicting when the next one will come along is impossible.

What this means for investors is that timing the market based on when you think a recession is coming, is a bad idea. Instead, investors should buy stock in companies that can weather economic storms and then hold onto those stocks for years, even when the economy takes a turn for the worse.

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