Economic fluctuations.

• Author: Hall, Robert E.

The U.S. business cycle continues to be the main concern of the NBER's Program on Economic Fluctuations. We have examined the sources of the business cycle, propagation mechanisms, and policy responses. The program is organized around a number of specialized research groups, each of which studies some aspect of the business cycle with a combination of analytical and empirical methods. Their results are presented at research meetings three times a year.

The program also maintains the semi-official chronology of the U.S. business cycle. This function is the responsibility of the Bureau's Business Cycle Dating Committee.

The 1991 Business Cycle Trough

On December 22, 1992, the Business Cycle Dating Committee announced its determination that the U.S. economy reached a trough of activity in March 1991. Previously, the committee had determined that the economy reached a peak of activity in July 1990. The eight-month period between July 1990 and March 1991 thus entered the NBER's chronology as a recession. The recession ended in March 1991 and an expansion began; the expansion is still underway at this writing.

The committee waited nearly two years to identify the trough. Although this period was unusually long and the committee was criticized for the delay, the sluggish performance of the economy during 1991 and 1992 compelled the long wait. The committee followed its normal policy of waiting to determine the trough date until there was no doubt that any future downturn in the economy would be considered a new recession and not a continuation of the recession that began in July 1990. An important fact to the committee was that the broadest measure of economic activity--gross domestic product in constant dollars--did not surpass its previous peak, according to data available at the time, until the third quarter of 1992. Not until December did the overall pattern of economic activity appear to be strong enough to warrant the determination of the trough date.

The behavior of the economy in 1991 made deciding on a trough date particularly challenging. Two important monthly indicators related to the production and sales of goods--industrial production, and manufacturing-trade sales in constant dollars--had unambiguous troughs in early 1991 (in March and January, respectively). Two other monthly indicators had declined to close to their minimum values by early 1991, but continued to decline slightly for the rest of that year. Real personal income reached its trough in November 1991, at a minuscule 0.07 percent below its level in April. Total hours of all nonagricultural employees reached its trough in April. The choice of March 1991 as the trough date was based primarily on the fact that various averages of the monthly indicators reached clear troughs in that month.

The Business Cycle Dating Committee meets as needed to keep the chronology up to date. The next meeting will occur when it appears appropriate to determine the date of the next peak in activity, or if new data become available that suggest that an existing date should be adjusted.

Overview of Modern Research in Economic Fluctuations

The unifying theme of research in the program is movements over time in national output, employment, productivity, interest rates, and inflation. Interestingly, none of the research tackles all of these issues jointly. Members of the program are not engaged in a collective effort to build a complete empirical model of the U.S. or world economies. Instead, research generally isolates particular parts of the economy, such as the behavior of the...