The ups and downs of the business cycle

Despite all the claims about the demise of the business cycle, it lives on. Every five years, the economies of the developed world experience a recession of varying intensity. In popular terms, a recession is defined as two consecutive quarters with falling gross domestic product (GDP). To be more precise, a recession in the USA occurs whenever a specifically appointed group of researchers at the National Bureau of Economic Research (NBER) says so. The decision they take depends not only on the growth rate, but also the unemployment rate and other factors.

Since the first recession was identified in 1854, thirty-two full business cycles had occurred before the present one, the average cycle thus having a duration of 4.6 years. The downturn (recession phase) lasted on average 17 months and the upturn (expansion phase) for 38 months. The latest identified low points in the cycle in the USA took place in March 1975, July 1980, March 1991 and November 2001. The 10-year uninterrupted expansion between 1991 and 2001 is unique, since the period lacks a clearly defined recession, even though the growth rate slowed in the middle of the period. The expansion from the autumn of 2001 was also much longer-lasting than usual. According to the NBER, the recent recession started in December 2007, after a 6-year expansion phase. But the latest recession has also been longer than average. It ended in June of 2009, according to an announcement by the NBER in September 2010. This would mean a recession of 18 months, the longest downturn since the 43-month Great Depression, and longer than the 16-month oil-price-induced contractions of 1973–5 and 1981–2.