What is an economic supercycle?
An economic supercycle typically refers to a prolonged period of expansion, which can last as long as a few decades.
Some economists differ on the definition of a supercycle, but it tends to be longer than the typical growth period in an economic cycle, which is identified by expansion, peak, contraction, and trough, before repeating again. An economic supercycle is typically characterized by a sustained period of growth in gross domestic product, personal income, and employment.
What are the characteristics of an economic supercycle?
Opinions vary among economists as to the exact definition of an economic supercycle as well as its start and end, but most definitions include the following characteristics.
Strong GDP growth
During a supercycle, GDP tends to be stronger than during a typical economic cycle as a result of robust demand for goods and services.
High employment
A pick-up in economic activity such as in manufacturing and financial services usually leads to the creation of new jobs. A low unemployment rate is typical during an economic supercycle, and more Americans in the workforce amid a strong economy could lead to a pick-up in economic activity. Living standards may rise and lift people out of poverty.
Low inflation
Supercycle inflation rates tend to be lower than they usually are during a typical economic cycle, and low inflation keeps interest rates from rising and prevents the Federal Reserve from taking an aggressive stance on monetary policy. A low-inflation environment also promotes consumer spending, which in turn supports economic growth.
Technological innovation
Disruptive advances in technology usually take place during an economic supercycle and lead to an increase in productivity. Some businesses undergo transformations to their operations to benefit from the progress in technology, such as automation of their production lines, reducing redundancy by cutting the workforce, and outsourcing work to other nations to boost profitability.
Favorable government policies
A generally favorable government attitude toward businesses is typical during an economic supercycle, and tax breaks and other incentives may exist to promote business activity. Deregulation of industries could pave the way for entrepreneurship, leading to the rise of small businesses and job creation.
Examples of economic supercycles
Below are a few examples of economic supercycles, but their exact starting and ending points depend on economists’ different points of view.
Post Civil War
The period after the U.S. Civil War ended in 1865 and ushered in a movement toward the mass production of goods, which led to rapid advancements in machine technology and energy production and use. Despite periods of recession, this supercycle stretched into the era prior to the start of World War I in 1914.
Post World War II
Peacetime after World War II’s end in 1945 led to rapid growth in Western nations, as well as in emerging economies in Asia and South America. A baby boom led to population increases in the U.S. and many other countries, and the growth in middle-class households led to strong demand for goods and services.
Expanding production of aircraft and automobiles increased people's mobility and the transportation of goods between cities in the U.S. and international destinations. This period would last into the 1970s before rampant inflation sent interest rates soaring.
Reagan Era and beyond
Interest rates soared in the early 1980s to combat persistently high inflation. As consumer prices started to go down, however, the Federal Reserve eased monetary policy, setting the stage for a period of strong economic growth and rising financial assets, particularly in the stock market. The popularity of the personal computer during this time led to technological innovation and brought on the dawn of the internet in the mid-1990s.
A supply-side economics approach to the U.S. economy, including government incentives and lower tax rates for the wealthy and corporations, highlighted this supercycle. Despite periods of short recessions and the dot-com crash in the early 2000s, this supercycle would last until the 2007–2008 financial crisis.
What are the limitations of economic supercycles?
Even as a nation experiences unprecedented growth via an economic supercycle, there are limitations. A tight labor market could cause employees to seek higher wages, which could cause inflation to accelerate. Reductions in social welfare programs and income inequality also tend to occur during a supercycle.
Are there other types of supercycles?
Another type of supercycle is a commodities supercycle, which is a prolonged demand for commodities such as gold, steel, and corn. Additionally, a grand supercycle refers to the longest period in the Elliot wave theory, a technical indicator used in analyzing stock market trends.
