The business cycle is the fluctuation in economic activity that an economy experiences over a period of time. A business cycle is basically defined in terms of periods of expansion or recession.
During expansions, the economy is growing in real terms (excluding inflation), as evidenced by increases in indicators such as employment, industrial production, sales and personal incomes. During recessions, the economy is contracting, as measured by decreases in the above indicators.
Expansion is measured from the trough (or bottom) of the previous business cycle to the peak of the current cycle, while recession is measured from the peak to the trough. In the United States, the National Bureau of Economic Research (NBER) determines the official dates for business cycles.
According to NBER, there have been 11 business cycles from 1945 to 2009, with the average length of a cycle lasting about 69 months, or a little less than six years. The average expansion during this period has lasted 58.4 months, while the average contraction has lasted only 11.1 months.
The last expansion was determined to have commenced in June 2009, the period when the Great Recession of 2007-09 reached its trough (technically, that recession began in December 2007). (Source: Investopedia.)
Since this current cycle is aged and statistically due for recession, in makes sense for us to pay attention. Jumping to the conclusion: there remains a high probability of a global recession and no signs of a U.S. recession just yet.
By Steve Blumenthal | See the full story in On My Radar: First Do No Harm
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