Economic Trends

THIS EXPANSION MAY HAVE LEGS

Some years ago, economist Philip Cagan of Columbia University discovered an interesting correlation between interest-rate movements and the durability of cyclical expansions. Specifically, the longer the rates continued to decline after a recovery started, the longer the expansion tended to last.

In updating this analysis, Columbia's Center for International Business Cycle Research has found that the best correlation is provided by the commercial bank prime rate. Since the prime didn't touch bottom in the current recovery until February, 1994--35 months after the recession ended--this suggests that the expansion should last through 1996, if the historical relationship holds.BY GENE KORETZ