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Goldman Sees 60% Chance Current "Expansion" Continues Another 4 Years, Becomes Longest Ever

Tyler Durden's picture




 

Back in August, we were amused when Bank of America's chief economist, Ethan Harris, cut his 2015 GDP forecast from 3.3% to 2.3% in the span of one year (i.e., he was off by 30%) and yet in its latest long-term forecast predicted that the US economy would grow at a steady terminal pace of 2% (down from 2.2% previously) indefinitely. In other words, he forecast no recession over the next decade.

This is what he said: "Obviously, there is considerable uncertainty in forecasting many years out, so these should be viewed as rough baseline numbers. For example, if history is our guide, at some point in the next decade the US will experience a recession, but predicting a recession far in advance is almost impossible. We plan to update this table on a regular basis."

We laughed.

Then we laughed some more when that "other" big bank, Goldman Sachs tried to estimate just what the "impossibly to calculate" odds of a recession are. Its answer: "10-15% over the next year." 

But don't despair: in keeping with the economist tradition of being overly optimistic, Goldman's economists also said the following: "Using a dataset on developed market business cycles, we calculate that the unconditional odds that a six-year-old expansion will avoid recession for another four years—and mature into a 10-year-old expansion—are about 60%."

It adds:

According to the National Bureau of Economic Research (NBER)—which serves at the semi-official arbiter of US business cycle dates—the average US expansion has lasted only about 3 1/4 years, and the longest expansion lasted 10 years (from 1991 to 2001).

In other words, after central banks injected some $13 trillion (and rising) in liquidity to prop up global stock markets, Goldman is more than 50% confident that the current "expansion" will become the longest expansion in history.

It was unclear how much of global debt - currently around 30% - central banks would have to own by 2019 in order to justify this forecast.

And here, for our readers' amusement, is the full note:

US Daily: Going the Distance

  • The current economic expansion is now more than six years old, raising questions about its “life expectancy”. Fortunately, the historical record suggests the age of the expansion has little bearing on the risks of a downturn—i.e. recession odds are only loosely related to time.
  • Using a dataset on developed market business cycles, we calculate that the unconditional odds that a six-year-old expansion will avoid recession for another four years—and mature into a 10-year-old expansion—are about 60%.

The economic recovery that began in July 2009 is now 76 months or 6 1/3 years old. According to the National Bureau of Economic Research (NBER)—which serves at the semi-official arbiter of US business cycle dates—the average US expansion has lasted only about 3 1/4 years, and the longest expansion lasted 10 years (from 1991 to 2001). With some late-cycle phenomena such as elevated credit spreads starting to appear, questions about the current expansion’s “life expectancy” have become increasingly common. While there are undoubtedly risks to the outlook, the historical record suggests the age of the expansion itself has little bearing on the near-term prospects of a downturn.

 

To measure the duration of typical economic expansions we collected annual data on real per capita GDP for developed countries from 1850-2014 (we spliced together data from the Angus Maddison Project, the IMF’s World Economic Outlook, and Global Financial Data, Inc.). We then classified any year with negative per capita GDP growth as a recession, and all other years as expansions. This methodology is different from the one used by the NBER, but it allows for a consistent approach for all countries. The final dataset includes 355 expansions across 14 economies.

 

Exhibit 1 plots this history of developed market expansions. Two main points stand out. First, the duration of expansions seems to have increased over time. Prior to 1950, the average expansion lasted about three years, with only a handful of expansions lasting 10 years or more. Since that time, expansions have averaged about eight years, and many more have survived past the decade mark (the US average since 1950 is a bit shorter, at around five years). Second, the distribution of expansion durations is “fat tailed”, with many short expansions but many lengthy ones as well. For example, about 30% of the expansions since 1950 have lasted only one or two years, but another 30% have lasted nine years or more. Most of the very long expansions (those lasting two decades or more) represent the post-war rebuilding efforts in Western Europe and Japan.

 

 

Based on these historical business cycles, we can calculate the probability that an expansion will continue given a certain starting point—in the same way that one can derive survival probabilities from an actuarial table. When an expansion is just starting out, the odds that it will last more than six years—i.e. beyond the life the current US expansion—are only about 45%, based on data since 1950. However, the “mortality rate” of business cycles is fairly steady from one year to the next, with only a slight tendency to increase over time (Exhibit 2, left panel). Therefore, conditional on an expansion reaching six years of age, the odds that it can continue are still reasonably good. Again using data since 1950, we calculate that the unconditional odds that a six-year-old expansion will avoid recession for another four years—and mature into a 10-year-old expansion—are about 60% (Exhibit 2, right panel).

 

 

It’s important to stress that these figures represent unconditional probabilities—the equivalent of life expectancies without regard to physical health. That being said, we see the historical record as mildly encouraging, and the message broadly aligns with our judgmental view—we would put the odds of recession over the next year at about 10-15%. Although there are clearly some risks to the US economy—especially from developments abroad—we do not expect the expansion to expire of old age.

* * *

Yes "longer expansions" as Goldman adds, however what it forgot to note is how much more violently they tend to end, in a time when their duration has been artificially expanded with ever more aggressive central bank intervention around the globe.

What Goldman also forgot to add is that in the "conditional probability" of an expansion hitting 6 years only took three QEs, one Twist and 7 years of ZIRP. What will push it forward? Oh wait, it's the "bullish" rate hike.... oddly enough rate hikes were not that bullish to be considered as economic growth factors in 2009... or 2010... or 2011... or 2012... or 2013... or 2014... In fact, while the US is hiking as a "bullish sign", the ECB is planning to cut rates even more negative you know, because that too is "bullish."

That said, this being a Goldman forecast, we are confident readers realize that a looming recession is now the base case.

 

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Tue, 11/10/2015 - 08:56 | 6771594 JustObserving
JustObserving's picture

If not for fake inflation data, US would be in recession/depression right now

Tue, 11/10/2015 - 08:58 | 6771602 ShorTed
ShorTed's picture

Go long, Muppets.  Goldman has a lot of shit to sell you.

Tue, 11/10/2015 - 09:02 | 6771616 NoDebt
NoDebt's picture

It's all fake anyway so it could go on a damned sight longer than that, even.

 

Tue, 11/10/2015 - 09:04 | 6771630 VinceFostersGhost
VinceFostersGhost's picture

 

 

In theory....we could just print money forever.

Tue, 11/10/2015 - 09:20 | 6771671 Chupacabra-322
Chupacabra-322's picture

Theory? At the state where it's proven FACT!

Tue, 11/10/2015 - 10:05 | 6771853 HopefulCynical
HopefulCynical's picture

Go long, Muppets.  Goldman has a lot of shit to sell you.

Okay, thread's over. ShorTed wins.

Tue, 11/10/2015 - 10:32 | 6771960 froze25
froze25's picture

If Goldman says this then we know the collapse in "asset" prices is right around the corner.

Tue, 11/10/2015 - 09:22 | 6771679 FL_Conservative
FL_Conservative's picture

I'll have what they're smoking.

Tue, 11/10/2015 - 10:00 | 6771832 de3de8
de3de8's picture

And you can take that to the bank!

Tue, 11/10/2015 - 08:59 | 6771605 JustObserving
JustObserving's picture

Let's not forget that US inflation numbers are completely fake - so real US GDP is much, much lower:

The Chapwood Index for 2014 was 9.7% and official CPI in the land of the free was only 0.8%.  So the Nominal GDP of 5.6% for 2014 becomes real GDP of -4.1%.

The revised real GDP for years 2011 to 2013 worked out to -6.2%, -6.5%, -6.5% respectively.

What is the Chapwood Index?

"The Chapwood Index reflects the true cost-of-living increase in America. Updated and released twice a year, it reports the unadjusted actual cost and price fluctuation of the top 500 items on which Americans spend their after-tax dollars in the 50 largest cities in the nation."

http://www.zerohedge.com/news/2015-05-29/inaccurate-statistics-and-threa...

 

Tue, 11/10/2015 - 09:03 | 6771619 NoDebt
NoDebt's picture

You just made me want to buy moar stawks.

Tue, 11/10/2015 - 08:59 | 6771606 snodgrass
snodgrass's picture

We've been in a depression since 2008. This is all bullshit from bullshit central - Goldman Sacks Loot em and Burn.

Tue, 11/10/2015 - 15:09 | 6773554 SDShack
SDShack's picture

USSA has been in a depression since 2000. The only recovery that has been ongoing, and will continue to happen is full time jobs with benefits are being turned into part time jobs without benefits. Of course this is why the unemployment rate is dropping but real wages and household income is falling. All according to plan. Welcome to the New Feudal World Order.

Tue, 11/10/2015 - 08:57 | 6771597 1000yrdstare
1000yrdstare's picture

Did they factor in a World War in that 4 years? I didn't see it...

Tue, 11/10/2015 - 08:57 | 6771600 Budnacho
Budnacho's picture

"Rainbow-Unicorns shitting Skittles is about a 75% chance...."

Tue, 11/10/2015 - 08:59 | 6771603 negative rates
negative rates's picture

Hey, lets go over to your house, and sometimes we can go over to my house.

Tue, 11/10/2015 - 08:59 | 6771604 Panic Mode
Panic Mode's picture

Come on Goldman, suck me dry.

Tue, 11/10/2015 - 09:03 | 6771620 XAU XAG
XAU XAG's picture

@Panic Mode

"Come on Goldman, suck me dry".

 

Not while there's DOGS on the street!

Tue, 11/10/2015 - 09:00 | 6771608 XAU XAG
XAU XAG's picture

We are already in a recession within a depression.

 

Some one needs to take thier head out of thier ARSE..................and look at what's going on in the real world

Tue, 11/10/2015 - 09:34 | 6771716 VinceFostersGhost
VinceFostersGhost's picture

 

 

But stawks are up.....look for yourself!

 

Just don't visit a local mall.

Tue, 11/10/2015 - 09:47 | 6771763 cpgone
cpgone's picture

Malls in Texas are packed, and not just by illegals.

 

Tue, 11/10/2015 - 09:00 | 6771609 soniii
soniii's picture

the trolling is real

Tue, 11/10/2015 - 09:01 | 6771611 Quinvarius
Quinvarius's picture

I don't know if the world can take 4 more years of this kind expansion and prosperity without completely devolving into anarchy.  

Tue, 11/10/2015 - 11:28 | 6772189 GMadScientist
GMadScientist's picture

"If your expansions last for more than 4 years, consult a doctor immediately."

Tue, 11/10/2015 - 09:06 | 6771621 The best Sun
The best Sun's picture

Goldman Sachs said similar shit in 2008.

Anyone remember how that turned out.

What's that sucking sound?

I smell something.

Tue, 11/10/2015 - 09:21 | 6771676 sethco
sethco's picture

I would like to read GS prognostications from back then. seriously, someone needs to dig that up. Not it!

Tue, 11/10/2015 - 10:00 | 6771827 cpgone
cpgone's picture

youre in charge of digging it up. Get back to us ASAP.

thanks

Tue, 11/10/2015 - 11:03 | 6772096 venturen
venturen's picture

http://www.bloomberg.com/apps/news?pid=newsarchive&sid=aaQDUAN2hm5Q 

No Sign of `Sell' on Wall Street as Analysts Say: `Buy,' `Hold'

Dec 2007

Tue, 11/10/2015 - 09:04 | 6771626 Bill of Rights
Bill of Rights's picture

Truly amazing how one track minded these people are. The economy is crumbling ever so steady and they ratchet up the happy happy news. Life is good when you have an endless stream of dollars at your disposal, not so wonderful for the typical wage earner living paycheck to paycheck, if your lucky enough to receive a paycheck that is.

 

We'll be eating out of trash cans and these morons will say it was a stellar Christmas spending season.

Tue, 11/10/2015 - 09:12 | 6771649 Kina
Kina's picture

These gusy just sprout shit everytime they open their mouth.

Obviously what they are saying is a total lie, and as always the opposite of the truth.

Tue, 11/10/2015 - 09:14 | 6771660 wisebastard
wisebastard's picture

i would not trust a goldman sachs employee to hang in a noose

Tue, 11/10/2015 - 09:17 | 6771667 cpnscarlet
cpnscarlet's picture

Today, the economy is expanding, tomorrow we will report on it contracting.

Today we'll talk about December hikes. Tomorrow, we report on the FED hinting at NIRP. The game here is for you to guess which report is true (NEITHER is a valid response).

Love you long time,

MSM

Tue, 11/10/2015 - 09:19 | 6771668 SSRI Junkie
SSRI Junkie's picture

another glorious press release from the whitehouse to goldman

Tue, 11/10/2015 - 09:25 | 6771690 I AM SULLY
I AM SULLY's picture

I see a 75% chance that bankers will be falling from the sky on Wall Street and in London - real soon.

Tue, 11/10/2015 - 09:32 | 6771707 Hughing
Hughing's picture

Jurgen Theorem: The worse it is, the more you lie.

Tue, 11/10/2015 - 09:41 | 6771711 falak pema
falak pema's picture

"Viva CB printing and central planning" says the Squid.

If it succeeds for FOUR MOAR YEARS then Krugman, the poster child of centrally planned money expansion, will become the ICON of the ages!

If the WS beanstalk can flourish, inspite of fundamentals, on toxic money print, then indeed the CBs have invented a new paradigm and Capitalism has entered the era of perpetual money machine without a DOWNSIDE; provided the CBs' control on MS --via DIRECT HELICOPTER dropping (not via bankster debt creation)-- shows itself as tighter than the hold of the Supreme Soviet!

Newton's Laws now don't apply to a monetary system that follows the BIG Bang theory of the Universe; aka continual expansion!

Paging Mr Stephen Hawkin..Paging...Krugman to the Moon !

ZH and Tylers will have to eat their hats!

Tue, 11/10/2015 - 09:46 | 6771756 luckylongshot
luckylongshot's picture

Why would anyone want to be a Goldman client?

Tue, 11/10/2015 - 09:51 | 6771792 I AM SULLY
I AM SULLY's picture

(free anal)

Tue, 11/10/2015 - 09:48 | 6771768 Niall Of The Ni...
Niall Of The Nine Hostages's picture

Yeah, sure. That roulette wheel has a 50 percent chance of turning up red, but are you really going to put your life savings on red?

Back on planet earth, statisticians' usual cut-off for certainty (or close to it) is 95 percent or higher---at least when Goldman isn't paying them to insult the intelligence of investors.

Tue, 11/10/2015 - 09:59 | 6771824 Ban KKiller
Ban KKiller's picture

GS has a vested interest only in their interest. Muppets are for harvesting...

Does the FBI know why the muppets haven't tried violence against the banksters? Oh, right, they are too busy! 

Tue, 11/10/2015 - 10:11 | 6771877 damicol
damicol's picture

And how does that work when the US has been in fucking recession for 5 fucking years already.

If only they opened their fucking eyes and stopped looking at the invented bullshit they fucking concoct.

Fucking stupid cunts.

Any fucker listens to this fucking type of shite deserves to get cleaned out fucked up the ass and thrown on the street

Tue, 11/10/2015 - 11:13 | 6772131 nofluer
nofluer's picture

5 years? You musta went to one of them government schools. It started in 2008, that's 7 years.

Tue, 11/10/2015 - 10:12 | 6771879 cheech_wizard
cheech_wizard's picture

Long hockeysticks...

Tue, 11/10/2015 - 10:38 | 6771951 honestann
honestann's picture

We can be absolutely certain GoldmanShafts is definitely taking the other side of this recommendation.  One must be a complete sucker to believe their obvious lies!

Tue, 11/10/2015 - 10:54 | 6772050 Byte Me
Byte Me's picture

Long homogenized Goldmanites.

Tue, 11/10/2015 - 10:58 | 6772070 venturen
venturen's picture

Best recovery since Lehman. 

Tue, 11/10/2015 - 11:11 | 6772124 nofluer
nofluer's picture

"Current "Expansion" "

ROTFLMBO!!!!!!!!! If the "economy" expands any more, we're going to be grazing grass and mooing.

Tue, 11/10/2015 - 11:15 | 6772133 Imagery
Imagery's picture

Always remember.....

They'll PRINT IT as long as YOU will TAKE IT.

Do NOT follow this link or you will be banned from the site!