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Six Years Later, U.S. Economy Still Underperforms

The U.S. economy is nearly six years into its current economic expansion cycle and overall economic numbers continue to disappoint. Friday's news that the U.S. economy contracted by 0.7% in the first quarter is expected to be a temporary blip in overall economic growth, but the current recovery phase remains limp and lackluster at best and well below historical averages.

According to the official arbiter of economic recessions and recovery, the current U.S. expansion began back in June 2009, the National Bureau of Economic Research (NBER) says. The preceding recession began in December 2007, which lasted a total of 18 months or the longest recession since World War II.

Is the U.S. economy at risk for slipping into another recession this year? The technical definition of a recession is two quarters of negative growth. For now, economists aren't forecasting a recession.

"Although the U.S. has managed to avoid recession for another year, it looks increasingly likely that 2015 won't be the year the economy musters up the momentum to top 3% real growth. The U.S. economy will likely see a 2.4% real growth rate for 2015, the same as in 2014, down from our 2.8% forecast in April," wrote Beth Ann Bovino, U.S. chief economist at Standard & Poor's Rating services.

"And when you consider that 3% is still nowhere near the five-year average annual growth rate after past U.S. recessions (going back 50 years) of 4.6%, the recent economic underperformance is especially notable, "Bovino added.

Here's a quick look at U.S. GDP in recent years:

2010: 2.5%
2011: 1.6%
2012: 2.3%
2013: 2.2%
2014: 2.4%
2015 estimated: 2.4%
2016 estimated: 2.8%
2017 estimated: 2.8%

Source: Standard & Poor's

The Federal Reserve is still aiming for lift-off from its zero interest rate policy this year, which now marks the sixth year of the current economic recovery cycle.  Most economists are eyeing September for the timing of the first rate hike, but the lackluster economic growth is expected to keep the pace of rate hikes very slow after that.

The current economic expansion cycle is getting long in the tooth. From 1945-2009 there were 11 economic expansion cycles in the U.S, which lasted an average of 58.4 months, according the NBER. The current expansion phase stands at 73 months. Take a look at the NBER's historical cycle information below in Figure 1.  

Most consumers and economists will likely agree that while the economy has shown positive growth this is the expansion that never really gained steam. Gold will continue to attract buying interest in the months and years ahead as investors look to the yellow metal as a diversification and wealth preservation and building tool. Even if the Fed does begin its rate hike cycle this year, interest rate increases will be minimal at best and the days of a more "normal" 4.0 range seem far off in the current economic environment.

Chart Source: National Bureau of Economic Research

By Kira Brecht,
Follow her on Twitter @KiraBrecht


Disclaimer: The views expressed in this article are those of the author and may not reflect those of Kitco Metals Inc. The author has made every effort to ensure accuracy of information provided; however, neither Kitco Metals Inc. nor the author can guarantee such accuracy. This article is strictly for informational purposes only. It is not a solicitation to make any exchange in precious metal products, commodities, securities or other financial instruments. Kitco Metals Inc. and the author of this article do not accept culpability for losses and/ or damages arising from the use of this publication.
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