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ISSUE 6 | SEPTEMBER 2017

F EDE RAL
R E S E RVE
BANK
ST. LOU IS

HOUSING MARKET
PERSPECTIVES
On the Level with Bill Emmons

Housing and Consumer Spending
Power the Economy like Never Before
T

he U.S. economic expansion
entered its ninth year in July and
soon will become the third-longest
growth period since World War II
(Table 1). It will become the longest
post-World War II recovery if it
endures through the second quarter
of 2020.
Despite its length, the current
expansion has been weak, ranking
ninth among the 10 post-WWII
business cycles.1 Only the previous
cycle, ending in the second quarter
of 2009, was weaker. That cycle was
dominated by the housing boom and
bust and culminated in the Great
Recession. As Table 1 shows, the average rate of economic growth beginning
in 2002 has been far below that in all
of the other business cycles listed.
Table 2 shows that the composition of economic growth also has
changed in recent decades, generally shifting in favor of housing and
consumer spending.2 Only during the
brief 1958-61 cycle did residential
investment—which includes both
the construction of new housing
units and the renovation of existing units—contribute proportionally
more to the economy’s growth than it
has during the current cycle. Perhaps
surprisingly, homebuilding subtracted
significantly from economic growth

during the previous business cycle
even though the period included the
housing bubble. The crash in residential investment was so severe between
the fourth quarter of 2005 and the
second quarter of 2009 that it erased
all of housing investment’s previous
growth contributions.3
Personal consumption expenditures
(i.e., consumer spending) also have
been very important in recent cycles.
Consumer spending has contributed
74.9 percent of overall economic
growth during this cycle so far, a share
exceeded in only two other cycles. Not
surprisingly, strong residential investment and strong consumer spending
tend to coincide when households are
doing well.4
The combination of weak overall
GDP growth and strong contributions by both residential investment
and consumer spending mark the
defining characteristic of the current
business cycle: Household-related
spending is driving the economy like
never before. Fully five-sixths, or
83 percent, of total growth since the
economy began to recover in 2009 has
been fueled by household spending.
Hence, the continuation of the current
expansion may depend largely on the
strength of U.S. households.

1

Bill Emmons is an
assistant vice president
and economist at the
Federal Reserve Bank of
St. Louis and the senior
economic adviser for the
Bank’s Center for Household Financial Stability.

ENDNOTES
1 “Business cycle” is defined here as the period
beginning in the first quarter after the end
of a recession through the last quarter of
the next recession, for what is known as a
“trough-to-trough” dating convention. The
current cycle began in the third quarter of
2009; since the cycle has not yet ended, the
provisional “end date” used in this analysis
is the most recent quarter ended (second
quarter of 2017).
2 The other components of gross domestic
product (GDP) are business investment,
exports and imports of goods and services,
and government consumption expenditures
and gross investment.
3 Residential investment typically subtracts
from growth during recessions, so its ultimate contribution to the current cycle likely
will be less than the amount shown in Table
2 because the next recession will be included
as part of the current cycle.
4 The correlation between average contributions to real GDP growth of residential
investment and consumer spending across
the 10 business cycles considered here is 0.68
(1.00=total correlation). Both types of spending respond to income growth and financing
conditions.
Housing Market Perspectives is published by the
Community Development department at the Federal
Reserve Bank of St. Louis in conjunction with its
quarterly Housing Market Conditions report.
See www.stlouisfed.org/hmc.

TABLE 1

Post-World War II Business Cycles
1950:Q1 1954:Q2

1954:Q3 1958:Q2

1958:Q3 1961:Q1

1961:Q2 1970:Q4

1971:Q1 1975:Q1

1975:Q2 1982:Q4

1983:Q1 1991:Q1

1991:Q2 2001:Q4

2002:Q1 2009:Q2

2009:Q3 2017:Q2*

Duration
(quarters)

18

16

11

39

17

31

33

43

30

32*

Rank among
post-WWII cycles

7

9

10

2

8

5

3

1

6

4*

4.05%

4.42%

2.91%

2.79%

3.89%

3.42%

3

2

6

7

4

5

Business cycle

Average
annualized
real GDP
growth rate
(percent)

6
5
4
3
2

5.51%
2.61%

1

1.69%

0

Rank among
post-WWII cycles

1

8

10

2.16%*
9*

SOURCES: Bureau of Economic Analysis and National Bureau of Economic Research.
*Current cycle has not yet ended. See endnotes.

TABLE 2

Composition of GDP Growth in Post-WWII Business Cycles
End of business cycle
Contribution of residential
investment (RI) to real GDP growth
(percent of total)
Rank among post-WWII cycles
Contribution of personal consumption
expenditures (PCE) to real GDP growth
(percent of total)
Rank among post-WWII cycles
Contribution of RI plus PCE to real
GDP growth (percent of total)

1954:Q2

1958:Q2

1961:Q1

1970:Q4

1975:Q1

1982:Q4

1991:Q1

2001:Q4

2009:Q2

2017:Q2*

2.7%

0.2%

8.3%

3.9%

-2.5%

0.6%

4.8%

6.5%

-14.7%

8.1%*

6

8

1

5

9

7

4

3

10

2*

37.5%

78.0%

53.8%

60.6%

66.8%

65.7%

59.3%

73.5%

77.0%

74.9%*

10

1

9

7

5

6

8

4

2

3*

100
80

83.0%*

80.0%

78.2%
60

62.1%

64.6%

64.3%

66.3%

64.1%

9

5

6

4

7

62.4%

40

40.1%
20
0

Rank among post-WWII cycles

10

3

SOURCES: Bureau of Economic Analysis and National Bureau of Economic Research.
*Current cycle has not yet ended. See endnotes.

2

2

8

1*