What was a major factor in the expansion of the American economy?

FILE PHOTO: A "Now Hiring" sign is posted on a Verizon store in Manhattan in New York City, U.S. on May 10, 2016. Photo by Brendan McDermid/Reuters

The U.S. economy has officially entered the longest expansion in its history.

The nation's gross domestic product has been growing for the last 121 consecutive months, the metric used to measure periods of sustained economic growth. That surpasses the 120-month expansion from 1991 to 2001.

The most recent expansion started in 2009, after the global financial crisis in 2008. The Great Recession was the worst U.S. economic downturn since the Great Depression in the 1920s and '30s.

President Donald Trump regularly takes credit for the strong economy on his watch, although the expansion began under President Barack Obama and has continued on a relatively steady pace since 2009.

The Republican tax cuts and increased government spending last year did boost the nation's gross domestic product. But those gains are now wearing off as spending slows, prices rise and Americans prepare for the personal income taxes to expire in 2025.

What has the expansion looked like?

The unemployment rate has dropped from a peak of 10 percent in October 2009 to 3.6 percent in May of this year.

Unlike past expansions, inflation has also remained below the Federal Reserve's 2 percent target over most of the past decade. The major stock market indices have also quadrupled since the Great Recession.

10,000 baby boomers are retiring each day.

But the current economic expansion has been slower than previous periods of economic growth. The economy has grown at an average rate of 2.3 percent per year since 2009. In comparison, the economy grew 3.6 percent per year during the 1990s.

The lackluster growth rate has sparked discussions of whether slower economic growth might be the "new normal."

A combination of unskilled workers and an aging population has likely contributed to the lower growth rate. Around 10,000 baby boomers are retiring each day, and employers have struggled to replace those workers.

Who has benefitted?

The economic expansion has largely helped two groups of people. Those who were unemployed during the Great Recession, and the wealthiest Americans.

Twenty-one million jobs have been created since 2009, and many have gone to people who lost their jobs during the Great Recession.

On the other end of the economic spectrum, investors were able to borrow at extremely low interest rates and use the loans to create more wealth. Many people who already owned stocks before the recession were able to make back the money they lost in the downturn and then some.

But people who did not have investments were not able to benefit from the low interest rates. And despite the lengthy expansion, wages have only started rising substantially for the majority of the population in recent months.

Economists have debated why that is. Some point to companies prioritizing stock buybacks instead of investing in workers. Others point to low worker productivity and employers' focus on increasing employee benefits rather than pay.

All those factors combined have contributed to a widening wealth gap.

"Things are better in the aggregate," said Bradley Hardy, a labor economist at American University. "People are employed, and that employment comes with fringe benefits."

But, Hardy said many Americans, even those in the middle-class, are still struggling financially.

A recent Federal Reserve survey found that 39 percent of Americans still did not think they could pay for an unexpected $400 expense. That's a significant improvement from 2013, when 50 percent of Americans said they couldn't afford the expense, but it remains high, especially for Americans who live in areas where wages have not kept up with rising housing costs.

What's next?

Economists like to say that expansions do not die of old age. Australia, for example, has gone 27 years without a recession.

But some economists do see reasons to be worried, and most expect at least a mild recession to occur next year.

"We will see a reasonably good economy for most of this year, but the recent data has been shaky," said Dan North, chief economist at Euler Hermes North America.

Hiring has slowed, and the yield curve has inverted, signaling investor fears for the near future. The yield curve, which measures the comparative rate of return on investments in government bonds, has long been seen as a predictor of recessions, and it could mean now that the Federal Reserve has already raised interest rates too much.

READ MORE: Why the inverted yield curve makes investors worry about a recession

When the Federal Reserve raises rates too quickly, access to cash at low interest rates dries up. That can put a damper on economic investment and help spur a recession.

Trump has been a fierce critic of the Federal Reserve's decision to raise rates, breaking from previous presidents who have refrained from interfering in the nation's monetary policy.

But Trump's own policies are also contributing to investor uncertainty. The back and forth on trade between the U.S. and China has rattled the stock market. The economy at large has been able to absorb the tariffs so far, but if the two countries don't reach a deal soon, U.S.companies and consumers will feel the pain.

If consumers and businesses are forced to pull back on spending because of the trade war, that could contribute to a recession.

Constituting less than 5 percent of the world's population, Americans generate and earn more than 20 percent of the world's total income. America is the world's largest national economy and leading global trader. The process of opening world markets and expanding trade, initiated in the United States in 1934 and consistently pursued since the end of the Second World War, has played an important role in the development of American prosperity. According to the Peterson Institute for International Economics, American real incomes are 9% higher than they would otherwise have been as a result of trade liberalizing efforts since the Second World War. In terms of the U.S. economy in 2013, that 9% represents $1.5 trillion in additional American income.

Such gains arise in a number of ways. Expanding the production of America's most competitive industries and products, through exports, raises U.S. incomes. Shifting production to the most competitive areas of our economy helps raise the productivity of the average American worker and through that the income they earn. With the ability to serve a global market, investment is encouraged in our expanding export sectors and the rising scale of output helps lower average production costs. Such effects help strengthen America’s economic growth rate. Moreover, imports increase consumer choice, and help keep prices low raising the purchasing power for consumers. Imports also provide high quality inputs for American businesses helping companies and their U.S. employees become or remain highly competitive in both domestic and foreign markets.

The potential economic gains from trade for America are far from exhausted. Roughly three quarters of world purchasing power and over 95% of world consumers are outside America's borders. The Peterson Institute analysis also estimated that elimination of remaining global trade barriers would increase the benefit America already enjoys from trade by another 50%. Trade remains an engine of growth for America. The negotiation of further reductions in global barriers and effective enforcement of existing agreements are the tools to reap those additional benefits.

As policy actions taken in the United States and countries around the globe continue to restore economic and job growth, an important part of the recovery will be the restoration of trade expansion. Over the past 5 and one quarter years of recovery (from the 2nd quarter of 2009 to the 3rd quarter of 2014), U.S. real GDP is up 2.3% at an annual rate, and exports have contributed one-third (0.7 percentage points) to this growth. Jobs supported by U.S. exports of goods and services are up an estimated 1.6 million since 2009, to an estimated 11.3 million in 2013.

Rapid trade growth may well act as a transmitter of economic stimulus around the globe and a vehicle of continued recovery, particularly if enhanced by additional efforts to reduce barriers and expand trading opportunities further. Recognition of the long term benefits of expanded trade, as well as the positive role trade can play in the current economic recovery are central factors reflected in the Administration's trade policy.

The economy's performance is at the heart of the decision to buy or sell dollars. A strong economy will attract investment from all over the world due to the perceived safety and the ability to achieve an acceptable rate of return on investment. Since investors always seek out the highest yield that is predictable or "safe," an increase in investment, particularly from abroad, creates a strong capital account and a resulting high demand for dollars.

On the other hand, American consumption that results in the importing of goods and services from other countries causes dollars to flow out of the country. If our imports are greater than our exports, we will have a deficit in our current account. With a strong economy, a country can attract foreign capital to offset the trade deficit. That allows the U.S. to continue its role as the consumption engine that fuels all of the world economies, even though it's a debtor nation that borrows this money to consume. This also allows other countries to export to the U.S. and keep their own economies growing.

From a currency trading standpoint, when it comes to taking a position in the dollar, the trader needs to assess these different factors that affect the value of the dollar to try to determine a direction or trend.

• The U.S. dollar has been a bedrock of the global economy and a reserve currency for international trade and finance.
• Like any other fiat currency, the dollars relative value depends on the economic activity and outlook of the United States.
• In addition to fundamentals and technical factors, market psychology and geopolitical risk also influence the dollar's value on the world market.

The methodology of determining dollar value trades can be divided into three groups as follows:

• Supply and demand factors
• Sentiment and market psychology
• Technical factors

Below we'll take a look at each group individually and then see how they work together as a unit.

When the U.S. exports products or services, it creates a demand for dollars because customers need to pay for goods and services in dollars. Therefore they will have to convert their local currency into dollars by selling their own currency to buy dollars to make the payment. In addition, when the U.S. government or large American corporations issue bonds to raise capital that is then purchased by foreign investors, those payments will also have to be made in dollars. This also applies to the purchase of U.S. corporate stocks from non-U.S. investors, requiring the foreign investor to sell their currency to buy dollars to purchase those stocks.

These examples show how the U.S. creates more demand for dollars, and that in turn puts pressure on the supply of dollars, increasing the value of the dollar relative to the currencies being sold to buy dollars. On top of this, the U.S. dollar is considered a safe haven during times of global economic uncertainty, so the demand for dollars can often persist despite fluctuations in the performance of the U.S. economy.

In the case that the U.S. economy weakens and consumption slows due to increasing unemployment, for instance, the U.S. is confronted with the possibility of a sell-off, which could come in the form of returning the cash from the sale of bonds or stocks in order to return to their local currency. When foreign investors buy back their local currency, it has a dampening effect on the dollar.

Traders are tasked with gauging whether the supply of dollars will be greater or less than the demand for dollars. To help us determine this, we need to pay attention to any news or events that may impact the dollar's value. This includes the release of various government statistics, such as payroll data, GDP data, and other economic information that can help us to determine whether there is strength or weakness in the economy.

In addition, we need to incorporate the views of larger players in the market, such as investment banks and asset management firms, to determine the general economic sentiment. Sentiment will often drive the market rather than the economic fundamentals of supply and demand. To add to this mix of prognostication, traders are tasked with analyzing historical patterns generated by seasonal factors such as support and resistance levels and technical indicators. Many traders believe that these patterns are cyclical and can be used to predict future price movements.

Traders typically adopt some combination methods we outlined above to make their buy or sell decisions. The art of trading exists in stacking the odds—in the form of congruence in the three methodologies—in your favor and building an edge. If the probability of being correct is high, the trader will assume the risk of entering the market and managing their hypothesis accordingly.

The economic conditions during the recession that began in 2007 forced the U.S. government to play an unprecedented role in the economy. Since economic growth was receding as a result of the large deleveraging of financial assets, the government had to take up the slack by increasing spending and propping up the economy. The purpose of government spending was to create jobs so that the consumer could earn money and increase consumption, thereby fueling the growth needed to support economic growth.

The government took this position at the expense of an increasing deficit and national debt. In short, the government essentially printed money and sold government bonds to foreign governments and investors to increase the supply of dollars, resulting in the currency's depreciation.

Outside of paying close attention to market sentiment and technical factors such as government data, it may be helpful for a trader to keep an eye on the Dollar Index chart to provide an overview of how the dollar fares against the other currencies in the index. A trader can develop a big picture sense of the flow of dollars and form an insight on how best to select profitable trading positions by watching the patterns on the chart and as mentioned above, listening to the major fundamental factors that affect supply and demand.