Business Cycle
Author | Anand Shetty, David Bowers |
Pages | 61-66 |
Page 61
A business cycle refers to the ups and downs of the general level of economic activity for a country. Such changes are normally visible in key macroeconomic measures such as gross domestic product (GDP), real income, employment, industrial output, and wholesale-retail sales. The upward movement in economic activity is referred to as the expansion phase and the downward movement as the contraction phase of the cycle. The turning points of the cycle are called the peak, which is at the end of the expansion phase, and the trough, which is at the end of the contraction phase.
Much attention is paid to the timing of these turning points and the duration of the phases. The expansion phase of the business cycle starts with a short period of recovery before becoming a full-blown expansion. Similarly, a period of recession occurs at the start of the contraction phase. Thus the cycle is generally referred to as
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Table 1
Business cycle expansions and contractions
Business cycle expansions and contractions | |||||
Business cycle reference dates | Duration in months | ||||
Trough | Peak | Contraction (trough from previous peak) | Expansion (trough to peak) | Cycle | |
Trough from previous trough | Peak from previous peak | ||||
1 31 cycles | |||||
2 15 cycles | |||||
3 26 cycles | |||||
4 13 cycles | |||||
Notes: | |||||
1) Figures printed in bold italic are the wartime expansions (Civil War, World Wars I and II, Korean war and Vietnam war), the postwar contractors, and the full cycles that induce the wartime expansions. | |||||
2) The determination that the last contraction ended in November 2001 is the most recent decision of the Business Cycle Dating Committee of the National Bureau of Economic Research. | |||||
SOURCE: National Bureau of Economic Research, Inc., 1050 Massachusetts Avenue, Cambridge MA 02133. | |||||
December 1854 | June 1857 | — | 30 | — | — |
December 1858 | October 1860 | 18 | 22 | 48 | 40 |
June 1861 | April 1865 | 8 | 46 | 30 | 54 |
December 1867 | June 1869 | 32 | 18 | 78 | 50 |
December 1870 | October 1873 | 18 | 34 | 36 | 52 |
March 1879 | March 1882 | 65 | 36 | 99 | 101 |
May 1885 | March 1887 | 38 | 22 | 74 | 60 |
April 1888 | July 1890 | 13 | 27 | 35 | 40 |
May 1891 | January 1893 | 10 | 20 | 37 | 30 |
June 1894 | December 1895 | 17 | 18 | 37 | 35 |
June 1897 | June 1899 | 18 | 24 | 36 | 42 |
December 1900 | September 1902 | 18 | 21 | 42 | 39 |
August 1904 | May 1907 | 23 | 33 | 44 | 56 |
June 1908 | January 1910 | 13 | 19 | 46 | 32 |
January 1912 | January 1913 | 24 | 12 | 43 | 36 |
December 1914 | August 1918 | 23 | 44 | 35 | 67 |
March 1919 | January 1920 | 7 | 10 | 51 | 17 |
July 1921 | May 1923 | 18 | 22 | 28 | 40 |
July 1924 | October 1926 | 14 | 27 | 36 | 41 |
November 1927 | August 1929 | 13 | 21 | 40 | 34 |
March 1933 | May 1937 | 43 | 50 | 64 | 93 |
June 1938 | February 1945 | 13 | 80 | 63 | 93 |
October 1945 | November 1948 | 8 | 37 | 88 | 45 |
October 1949 | July 1953 | 11 | 45 | 48 | 56 |
May 1954 | August 1957 | 10 | 39 | 55 | 49 |
April 1958 | April 1960 | 8 | 24 | 47 | 32 |
February 1961 | December 1969 | 10 | 106 | 34 | 116 |
November 1970 | November 1973 | 11 | 36 | 117 | 47 |
March 1975 | January 1980 | 16 | 58 | 52 | 74 |
July 1980 | July 1981 | 6 | 12 | 64 | 18 |
November 1982 | July 1990 | 16 | 92 | 28 | 108 |
March 1991 | March 2001 | 8 | 120 | 100 | 128 |
November 2001 | 8 | — | — | — | |
Average, all cycles: | |||||
1854–2001 (32 cycles) | 17 | 38 | 55 | 556 | |
1854–1919 (16 cycles) | 22 | 27 | 48 | 649 | |
1919–1945 (6 cycles) | 18 | 35 | 53 | 53 | |
1945–2001 (10 cycles) | 10 | 57 | 67 | 67 | |
Average, peacetime cycles: | |||||
1854–2001 (27 cycles) | 18 | 33 | 51 | 752 | |
1954–1919 (14 cycles) | 22 | 24 | 46 | 847 | |
1919–1945 (5 cycles) | 20 | 26 | 46 | 45 | |
1945–2001 (8 cycles) | 10 | 52 | 63 | 63 |
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consisting of four phases: recovery, expansion, recession, and contraction.
The transition from phase to phase is described in terms of the rate of growth of the economy. During the recovery phase, the economy turns into a positive growth period with an increasing rate of growth. During the expansion period, the economy continues to grow, but gradually at a decreasing rate. After the peak is reached, the rate of growth will turn negative, causing the economic activity to decline and the economy to slip into recession. The recession phase is marked by a rapidly declining economy from its peak. The rate of decline slows down as the cycle approaches its trough and the economy passes through the contraction phase. A severe contraction is referred to as a depression, the type that occurred in 1930s. During the Great Depression, the output fell by almost 50 percent and employment by 22 percent. All the recessions since then have been shorter in duration and less severe.
The time taken to complete a cycle can vary from cycle to cycle, with the time usually measured from peak to peak or trough to trough. Considerable variability of the duration of business cycles has been observed in the past. Between 1854 and 1982, there were 30 business cycles with an average length from trough to trough of 46 months and standard deviation of 16 months. The average length of the expansion in these cycles was 27 months with a standard deviation of 11 months, and the average contraction was 19 months with a standard deviation of 13. Though they varied greatly in duration and scope, all of them had some common features. They were national or international in scope; they affected output, employment, retail sales, construction, and other macroeconomic variables; and they lasted for years, with upward movement longer than downward movement.
It is sometimes useful to speak of the cycles of specific time series; that is, the interest rate cycle, the inventory cycle, the construction cycle, and so forth. Given the diversity of general economic cycles, one can find turns in the general level of economic activity in which individual sectors of the economy do, at least for a time, appear to be independent of the rest of the economy. The most frequently mentioned individual cycles are the inventory cycle, the building or construction cycle, and the agricultural cycle. The standard business cycle is sometimes referred to as the inventory cycle, and some business cycle theorists explain the severity of turns in the economy by the coincidence of timing in the individual cycles.
The idea of the timing of individual time series relative to the general level of business implies specific dates for the...
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