Glossary

Business Cycles

Following the NBER's (National Bureau of Economic Research) approach, a business cycle is the period elapsed between a given "trough" and the previous "trough", or alternatively between a given "peak" and the previous "peak". The "trough" of a business cycle marks the end of "recession" or "contraction" and the beginning of "expansion". The "peak" marks the end of expansion and the beginning of recession.

Billions of people, whether in business firms, households, research laboratories or public offices, constantly make independent decisions that impact the economy, either directly — for instance by consuming or by postponing consumption —, or indirectly — for instance by achieving a technology breakthrough, or by fueling international tension. Such a complex cobweb of interactions is bound to generate frequent imbalances between interdependent economic variables, such as orders and deliveries, output and capacity, labor requirements and labor available, borrowing and credit supply, saving and consuming, production costs and pricing, etc.

The economic instability resulting from those imbalances is a reflection of the inability of the players — consumers, producers, investors, regulators, etc. — to adapt themselves instantly and smoothly to the never-ending changes of economic life. Various economic indicators, for instance GDP (gross domestic product), income, employment, industrial output, interest rates, capital flows, debt, or price fluctuations, provide a way to trace the variations of the level of economic activity, and pinpoint its cyclical highs and lows.

Since we live in an economy essentially monetary- and business firm-based, such variations are commonly known as business cycles. The business cycle has ripple effects on the entire business system, from the rise and fall of firms and households, to the hazards of individual incomes, prices, output, employment, resource usage, costs and profits, spending, savings, investments, exports and imports, trading in securities and commodities, debt, money supply, and the fiscal operations of government.

Unfortunately, the locus of the triggering imbalance, its timing and magnitude, and the adjustments it may lead to can hardly be foreseen with precision. Although various and numerous theories have been construed to explain the business cycle phenomenon and single out its causal variables, there is a consensus among economists to acknowledge the deep complexity of the business cycle, and to explicitly reject mono-causal explanations.

Business cycles should be distinguished from other specific cycles:

Kitchin cycle: a short business cycle of about 40 months, linked to the time lag between the perception of rising demand and the building of inventory.
Kuznets cycle: of about 20 years, linked to investment in infrastructure.
Kondratiev cycle or long technological wave of about 50 years: the existence of these waves, while suggested by price movements, has not yet been established.

US Business Cycle Expansions and Contractions
Business Cycle Reference Dates ¹		Duration In Months
Peak	Trough	Contraction	Expansion	Cycle
Peak	Trough	Peak to Trough	Previous trough to this peak	Trough from Previous Trough	Peak from Previous Peak
	December 1854 (IV)	--	--	--	--
June 1857(II)	December 1858 (IV)	18	30	48	--
October 1860(III)	June 1861 (III)	8	22	30	40
April 1865(I)	December 1867 (I)	32	46	78	54
June 1869(II)	December 1870 (IV)	18	18	36	50
October 1873(III)	March 1879 (I)	65	34	99	52
March 1882(I)	May 1885 (II)	38	36	74	101
March 1887(II)	April 1888 (I)	13	22	35	60
July 1890(III)	May 1891 (II)	10	27	37	40
January 1893(I)	June 1894 (II)	17	20	37	30
December 1895(IV)	June 1897 (II)	18	18	36	35
June 1899(III)	December 1900 (IV)	18	24	42	42
September 1902(IV)	August 1904 (III)	23	21	44	39
May 1907(II)	June 1908 (II)	13	33	46	56
January 1910(I)	January 1912 (IV)	24	19	43	32
January 1913(I)	December 1914 (IV)	23	12	35	36
August 1918(III)	March 1919 (I)	7	44	51	67
January 1920(I)	July 1921 (III)	18	10	28	17
May 1923(II)	July 1924 (III)	14	22	36	40
October 1926(III)	November 1927 (IV)	13	27	40	41
August 1929(III)	March 1933 (I)	43	21	64	34
May 1937(II)	June 1938 (II)	13	50	63	93
February 1945(I)	October 1945 (IV)	8	80	88	93
November 1948(IV)	October 1949 (IV)	11	37	48	45
July 1953(II)	May 1954 (II)	10	45	55	56
August 1957(III)	April 1958 (II)	8	39	47	49
April 1960(II)	February 1961 (I)	10	24	34	32
December 1969(IV)	November 1970 (IV)	11	106	117	116
November 1973(IV)	March 1975 (I)	16	36	52	47
January 1980(I)	July 1980 (III)	6	58	64	74
July 1981(III)	November 1982 (IV)	16	12	28	18
July 1990(III)	March 1991(I)	8	92	100	108
March 2001(I)	November 2001 (IV)	8	120	128	128
December 2007 (IV)	June 2009 (II)	18	73	91	81
Average, all cycles:
1854-2009 (33 cycles)		17.5	38.7	56.2	56.4 ²
1854-1919 (16 cycles)		21.6	26.6	48.2	48.9 ³
1919-1945 (6 cycles)		18.2	35	53.2	53
1945-2009 (11 cycles)		11.1	58.4	69.5	68.5
¹ Quarterly dates are in parentheses. ² 32 cycles. ³ 15 cycle. Latest announcement from the NBER's Business Cycle Dating Committee, dated 9/20/10.

[Quoted or adapted from NBER, National Bureau of Economic Research, Cambridge, MA, USA]

Glossary

US Business Cycle Expansions and Contractions