We’ve Just Witnessed One of the Least Volatile Economic Recoveries on Record

It’s now been more than seven years since the official end of the last recession. In that time investors have been inundated with double dip recession calls, tales of increased uncertainty and warnings of higher volatility. Everyone was so shell-shocked by the Great Recession that it became easy to assume that catastrophe and economic upheaval were here to stay. Instead, we’ve actually had a relatively calm economic environment for some time now.

I looked back at real GDP growth rates going back to 1946 and then ran a simple rolling standard deviation on the past five years’ worth of data to see how volatile the growth has been over time (recessions shaded in gray):

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You can see that the past five years have been one of the least volatile on record going back to WWII. It’s kind of amazing how consistent growth has been over this time frame (with the caveat that recent economic data can still get revised higher or lower in the future). The biggest problem is that although growth has been consistent, it has also been relatively anemic. And one of the reasons that growth was more volatile in the past is because there was more of it. The following table on real GDP growth by decade shows how things have slowed over time:

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One of the reasons it’s been so tough for experts and pundits alike to get a read on the economic backdrop is because the volatility has been so low. Things just haven’t gotten too hot or too cold in this recovery so economic bulls and bears have both had plenty of chances to be wrong. Everyone expects there to be a huge move one way or the other and it just hasn’t happened yet. Another problem is that people tend to confuse stock market volatility with economic volatility, which aren’t even in the same ballpark:

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From 1946-2016 stock market volatility was nearly ten times higher than the volatility of economic growth (roughly 1.5% to 15.5%). It’s been said many times before, but stocks are not the economy. Yet even the stock market has seen its relative volatility fall in recent years even though many would have you believe otherwise.

This economic recovery has been uneven as not everyone has benefitted in the same capacity. Still, in some ways it’s hard to believe where we’re at considering how bleak things looked at the depths of the GFC. These things won’t last forever, but it’s worth noting where we are today more than seven years after one of the worst economic collapses of the past 100 years:

  • The unemployment rate is under 5%
  • Stocks are at all-time highs
  • The economy continues to grow, albeit at a sluggish pace
  • Oil prices remain below $50/barrel

Investors are fond of reminding people that “this will end badly.” And it’s true that markets and economies cannot grow forever without a pause, correction, recession or crash. But I think many people fail to recognize how smooth this recovery has been.

Further Reading:
Did We Just Witness the Best Risk-Adjusted Returns Ever?
When Will the U.S. Have Its Next Recession?


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  • notjustanindex

    Great points all of them. Not really The low vol is due to the tepid growth and lack of any real policies other than 0% interest rates to spur growth. The low unemployment figure you state is an enigma of underemployed and out of the game. The stock market rally has been fueled by a misguided Fed and has exacerbated the income gap. The low oil is due to a crap global economy and a desperate Saudi Arabia.

    • tagyoureit

      Both production and consumption of oil has increased, so not all bad news.

      “Global consumption of petroleum and other liquid fuels is estimated to have grown by 1.4 million b/d in 2015. EIA expects global consumption of petroleum and other liquid fuels to increase by 1.4 million b/d in 2016 and by 1.5 million b/d in 2017, mostly driven by growth in countries outside of the Organization for Economic Cooperation and Development (OECD). Non-OECD consumption growth was an estimated 1.0 million b/d in 2015, and it is expected to be 1.3 million b/d in 2016 and 1.5 million b/d in 2017.”


    • John Richards

      Sure, that’s part of the story, but if you ask me, it’s cherry-picking the worst possible view of things. Low volatility reflects credit conditions, and loose is better than tight – at least then people can choose for themselves if they want to carry debt. US Growth is no more tepid than after the dot.com crash, and both are only modestly less robust than last century, but that’s globalization, as much or more than policy driven. Low unemployment is just that – I see it visually in my everyday commute – there are more people on the road, people are hustling. There does appear to be an increased structural employment gap, and that rather sucks, but I don’t think it’s such an enigma. It’s a WW problem, they just don’t really know it yet, but it doesn’t invalidate the message. You can call the Fed misguided, but I think they pretty much nailed the recovery. The income gap is a modest issue in the short-run, just another on the list of things like SS and medicare and health insurance that all need to be addressed at some point. Low oil is due to entrepreneur US shale producers changing the global supply game, and the incredible growth of solar is even playing a small role. If that’s not what the US is about, I’m not sure what is. Disruption and disaster are everyday occurrences in this world, history makes this clear. Despite the twin drags of globalization and automation, the US economy forges forward, shrugging off the setbacks. This implies a lot of strength and momentum.

  • bubba123

    Low vol also because markets have become more efficient in respect of pricing. Computing in Finance only been used in last 10-20 years…It’s silly to look back as far as you did when people received all the information in paper form reading ticker tape etc.
    Growth is plateuing but this is expected following the industrial age…there’s not much left to invent or do in this world. Technology has improved the quality life across the population for the same $1. For $500 you get a smart phone which is better than a super computer 20 years ago at 1% of the cost.
    Even if efficiency improved a smart phone 10x more, what else do you want it to do lol.
    The same goes for everything. Growth and opportunities have stalled basically because we have an abundance of everything…

    • “there’s not much left to invent or do in this world….”

      “Everything that can be invented has been invented”
      -Charles H. Duell, Commissioner of the U.S. patent office…..year 1899

    • “there’s not much left to invent or do in this world….”

      “Everything that can be invented has been invented”
      -Charles H. Duell, Commissioner of the U.S. patent office…..year 1899

  • Randy Smith

    My surprise: Real GDP Growth 1970s = 3.2%, 1990s = 3%. The decade of stagflation and anemic growth vs the boom decade (post early recession) of the 90s. I’m inspired to go look at growth by year for those two decades. Nicely done, Ben.

    • Ben

      that is pretty crazy. even crazier is that nominal growth was 9.7%/year. inflation was the real killer in the 70s

  • Mark Massey

    The unemployment rate is at all all-time high for its inaccuracy. The real unemployment rate is between 15 and 20%. Hence the sluggish economic growth. Stocks are at all time highs but are they so when adjusted for inflation?