As Expansions Go, Current One Is Getting Old, But Two Economists

The current economic expansion just passed its fifth birthday and still looks young for its age, according to several bank economists.

Seen in terms of a human life span, this economic growth phase, which began in the spring of 1991, is in its early 60s, noted Stuart G. Hoffman, chief economist at PNC Bank Corp., Pittsburgh.

During the past 60 years, expansions - the intervals between recessions - have lasted four years on average, Mr. Hoffman said in a new issue of his publication, National Economic Outlook. But in the past 30 years, expansions have been more durable, lasting about six years.

"If typical expansions last 72 months (six years) and the average human life span is 75 years, then one month of an economic expansion equates to roughly one year in human life terms," the economist reasoned.

For its age, today's expansion is fairly spry, he said. The big reason is clean living - avoiding excessive inventories, undue inflation, intemperate money and credit growth, and lavish budget deficits.

In fact, expansions don't really succumb to old age, according to Nicholas S. Perna, chief economist at Fleet Financial Group. They perish as a consequence of growing imbalances, mostly inflation.

"The single most distinguishing feature of the current expansion is the remarkable stability of inflation around the very low level of 3%," he said.

Still, the current period is getting to be something of an old-timer as business cycles go. "Of the eight expansions since World War II, only two have gone longer," he said. "One other made it to four years and eight months."

But beware averages, the Fleet economist warned. Expansions have gone as long as nine years, and some have been as short as one, he noted, making the average a statistic to be approached with caution.

Neither Mr. Hoffman nor Mr. Perna expects today's expansion to develop a serious bout of inflation, so the specter of a business downturn is not on the horizon, they said.

"There is a faint whiff of inflation in the air, but it smells mostly like gasoline," said Mr. Hoffman. He expects gas prices to ease through the summer, however.

Nevertheless, by the PNC economist's calculation, the current expansion will be an octogenarian by late next year and increasingly vulnerable to life-threatening maladies.

"History tells us to approach 1997 with a degree of caution," he said. "Since the end of World War II, recessions have begun within one year after a presidential election six out of 12 times."

One element in the economic mix by next year, Mr. Hoffman said, will be higher interest rates. "A tighter monetary policy is most likely to start immediately following the election, but we cannot rule out a rate hike in late summer," he said.

"Recent statements by numerous Fed policymakers suggest that while the consensus still supports the status quo there is a growing sense that the risk of faster inflation is at least as great as the risk of recession," he said.

A tightening of rates seems more a matter of when than if, Mr. Hoffman said. By this time next year, the federal funds rate could be 50 to 75 basis points higher, "before heading back down in the latter half of 1997."

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