Changes in the Business Cycle

Abstract

Business cycle peaks and troughs cannot be identified immediately when they occur for two reasons. First, recessions and expansions are, by definition, recurring periods of either decline or growth. Second, the information that is needed to determine whether the economy has entered a recession or moved into an expansion phase is only available with a time lag. US business cycle peaks and troughs going back to the trough in December 1854 have been dated by the National Bureau of Economic Research. A business cycle represents fluctuations in the economy around full-employment output, but an economy’s full-employment output, often called potential gross domestic product, can also change. A simple comparison of the duration of expansions and contractions does suggest the US economy has performed better in the post-World War II era. While the US economy has enjoyed two consecutive record expansions, a longer historical perspective does help to remind us that business cycles are unlikely to be gone for good.