shown in Exhibit 6. This improvement in net worth Exhibit 7: Change in US Financial Sector Leverage will enable households to lower their savings Following Recessions rates going forward and support consumption. A decrease in financial sector indebtedness has contributed Therefore, even if the “hangover” hypothesis was to a slower-than-usual recovery. partly valid earlier in the recovery, it should have Change in Debt:to-GDP (Percentage Points) less impact in the future. 30 - — —— ~ Previous Post-WWII Recoveries (Median) F D —— Current Recovery During the current recovery, the financial sector 20 | — also deleveraged substantially, partly due to the a. oe unusually high levels of leverage that existed as nT the crisis began and partly due to greater financial — regulation resulting from the Dodd-Frank Wall 10 Street Reform and Consumer Protection Act signed 20 | into federal law by President Barack Obama on ‘an July 21, 2010. As shown in Exhibit 7, the financial re sector began to deleverage even before Dodd-Frank “° and has continued to do so through 2016. Ue ep Ree eRe em However, more recently, the pace of Quarters After Recession End deleveraging has abated, as shown in Exhibits 4 data through 022016 and 7. Furthermore, such deleveraging may well Source: Investment Strategy Group, National Bureau of Economic Research, Federal Reserve be bottoming and soon reverse as households Seonomic Data. and the financial sector face a more favorable OO fiscal and regulatory policy environment under President-elect Trump. For all practical purposes, with the average of past recoveries, the growth the “hangover” may now be over. gap narrows significantly if one accounts for the number of people in the labor force.'® Instead of Secular Stagnation: Unfavorable Demographics this recovery growing at about half the pace of As we discussed in our 2016 Outlook: The Last the average of past recoveries, the gap narrows to Innings, the term “secular stagnation” was first 83% of the