Business Cycle Dating Committee
Business cycles are the “ups and downs” in economic activity, defined in terms of periods of expansion or recession. During expansions, the economy, measured by indicators like jobs, production, and sales, is growing–in real terms, after excluding the effects of inflation. Recessions are periods when the economy is shrinking or contracting. During this period, the average business cycle lasted about five years; the average expansion had a duration of a little over four years, while the average recession lasted just under one year. The chart shows the periods of expansion and recession for the Composite Coincident Indicator Index from to The chart plots the behavior of the Composite Coincident Indicator Index from to
Dating the Recession
Recent research, Arias et al. Journal of Urban Economics 94 , constructs monthly economic activity indices for the 50 largest U. The activity index is based on twelve underlying economic variables – various measures of employment, earnings, personal income, permits for new housing, and financial variables.
The business cycle is defined as an economic phenomenon in which the aggregate activities of an economy repeatedly increase and decrease around the long-.
Figure 1 shows the data that most strongly influenced the committee: real personal income less transfers, real sales in manufacturing and trade, nonagricultural employment because was a Census year, the committee looked at private nonagricultural employment, and nonagricultural employment minus Census workers , and industrial production. The figure shows the basic problem of dating a business cycle: that different cyclical indicators have different turning points.
In Figure 1, all four series are normalized so that they have a value of 1 in July. Real income peaked in exactly that month. Real sales, a more volatile series, reached a pronounced peak in August. Employment peaked in June. And industrial production peaked in September. The U. One was a very broad slowdown starting in the spring. The other was a sharp contraction in industries automobile and others following the spike in oil prices in August.
The result was an unusual combination of leading employment and lagging industrial production. The July peak date was a reasonable compromise.
Centre for Economic Policy Research
At first glance, the job numbers of the last week seem to offer a mixed and confusing picture. Furthermore, recent numbers on claims for unemployment benefits have been discouraging. Is the United States in recession? If one looked solely at the adverse shocks that have hit the economy over the last year, one would infer an unusually high probability of a recession.
If one consulted some of the most import economic measures over the last year, one would say the country clearly entered a recession last January.
We introduce two new measures for dating business cycle turning points, which we call the %uCquarterly real-time GDP-based recession probability.
By Jeanna Smialek. A recession begins when the economy reaches a peak of activity and ends when it reaches its trough. This downturn is the first since , when the last recession ended, and marks the end of the longest expansion — months — in records dating back to Most economists expect this recession to be both particularly deep and exceptionally short, perhaps just a few months, as states reopen and economic activity resumes.
The National Bureau of Economic Research, a nonprofit group that tracks economic cycles in the United States, noted the unusual circumstances surrounding the slump in its announcement. Many economists believe the United States may already have exited the recession — or at least be on its way out.
Other Statistics – Business Cycle Dating
How does the Committee Define a Business Cycle? See Methodology. What data does the Committee use? See Data Sources.
The Council performs a similar function to the National Bureau of Economic Research (NBER) Business Cycle Dating Committee in the United States.
This report is also available as a PDF. The chronology identifies the dates of peaks and troughs that frame economic recessions and expansions. A recession is the period between a peak of economic activity and its subsequent trough, or lowest point. Between trough and peak, the economy is in an expansion. Expansion is the normal state of the economy; most recessions are brief. However, the time that it takes for the economy to return to its previous peak level of activity or its previous trend path may be quite extended.
According to the NBER chronology, the most recent peak occurred in February , ending a record-long expansion that began after the trough in June The NBER’s traditional definition emphasizes that a recession involves a significant decline in economic activity that is spread across the economy and lasts more than a few months. In our modern interpretation of this definition, we treat the three criteria—depth, diffusion, and duration—as at least somewhat interchangeable.
That is, while each criterion needs to be met individually to some degree, extreme conditions revealed by one criterion may partially offset weaker indications from another. For example, in the case of the February peak in economic activity, the committee concluded that the subsequent drop in activity had been so great and so widely diffused throughout the economy that, even if it proved to be quite brief, the downturn should be classified as a recession.
In choosing the dates of business-cycle turning points, the committee follows standard procedures to assure continuity in the chronology.
The Business Cycle in a Changing Economy: Conceptualization, Measurement, Dating
The Institute is at the centre of the National debate on the measurement and understanding of business cycle fluctuations. We start this process at the fundamental level. The UK has some excellent long run data on economic progress and some of the basic facts of business cycle peak and troughs have been explored in earlier work at the Institute. Chadha and Nolan explored the long run of the UK business cycle and presented some stylised facts on duration and the cyclical behaviour of macroeconomic aggregates.
We present a Table from Appendix A from their working paper with some basic business cycle dates.
The end of draws to close another year of economic expansion. The current cycle will soon be the second longest of modern times.
Reuters – The U. The designation was expected, but notable for its speed, coming a mere four months after the recession began. The committee has typically waited longer before making a recession call in order to be sure. When the economy started declining in late , for example, the group did not pinpoint the start of the recession until a year later. The unemployment rate rose from a record low of 3.
But growth may well recover from there, possibly making the current downturn not only among the sharpest but also among the shortest on record. Since World War Two recessions have lasted from six to 18 months, nothing close to the month downturn of the Great Depression that began in Though the data that began to accumulate in March rival some of the statistics from the Depression era, economists expect growth to resume this summer and likely continue unless the virus resurges.
The speed of the recovery will be important in determining whether the current recession has the same lasting impact as past downturns.
Some Observations on Determining Business Cycle Chronologies
Though judgement will surely never be and should not be eliminated from the NBER business cycle dating process, it is useful to see what standard statistical analysis suggests and can contribute. On page 32, they move to Application: The implications of a two-regime model using slack for dating US business cycle since And we have argued for potentially refining the definition of a recession to emphasize large and rapid increases in economic slack rather than declines in economic activity.
In Recession? The GDP gap roams all over the place, while the unemployment gap is increasing consistently over time. This is clear given the CBO systematic revisions of potential output in the chart below.
A business cycle dating committee will strengthen the information base for the economy and help gauge its changing nature. It has been a quarter of a century since India commenced the journey of opening its economy to the world. But the idea of a business cycle dating committee BCDC for India has not received sufficient attention. Most of the research in business cycles is done keeping in mind advanced industrial economies. The scarcity of research for studies of business cycles in India along with data limitations might be some of the reasons why policymakers in India are not too concerned about this issue.
Business cycles are the short-run fluctuations in aggregate economic activity around its long-run growth path. A BCDC maintains a chronology comprising alternating dates of peaks and troughs in economic activity. It analyses and compares the behaviour of key macroeconomic variables such as consumption, investment, unemployment, money supply, inflation, stock prices, etc.
Dating Business Cycle Turning Points
Figure 5. It shows that economies go through periods of increasing and decreasing real GDP, but that over time they generally move in the direction of increasing levels of real GDP. A sustained period in which real GDP is rising is an expansion; a sustained period in which real GDP is falling is a recession. Phases of the Business Cycle. The business cycle is a series of expansions and contractions in real GDP. The cycle begins at a peak and continues through a recession, a trough, and an expansion.
In this study we suggest a chronology of the classical business cycle in Switzerland. To this end we use two approaches: the approach of Artis et al. () and.
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Business Cycle Council
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