Business Cycles

1
Business Cycles

• Data deviations from trend growth
• Business cycle Data trend
• Trend changing all the time!
• Trend (and business cycle) hard to estimate in
  the data

2
Business Cycle booms and recessions

• In theory its a boom if the data are above
  trend, and a recession if the data are below
  trend
• Simpler real-time descriptions
• Recession if many pieces of data have been
  falling for two consecutive quarters
• Boom if many pieces of data have been rising for
  two consecutive quarters

3
The National Bureau of Economic Research

• NBER avoids terminology recession and
  focuses on recovery and contraction
• Semi-official business cycle dating committee
• They look at the following data
• GDP
• Employment
• Wholesale/Retail Trade
• IP
• Personal Income
• Contraction general decline in those data
• Expansion general recovery in activity in those
  data
• Economy may be characterized as expanding but
  still be below trend (in recession)

4
Cyclical indicators

• The business cycle is characterized by a general
  trend change in many economic variables all at
  the same time.
• Pro-cyclical rises/falls when GDP rises/falls
• Counter-cyclical falls/rises when GDP
  rises/falls
• A-Cyclical sometimes pro-cyclical, sometimes not

5
Leading indicators

• Leading indicator rises/falls before GDP
• Some data that get a lot of press because they
  are leading monthly indicators
• Durable goods are leading indicators
• Advance Durables orders
• Consumer Durables sub-aggregate in retail sales
• Durable goods component of IP
• New orders indicators
• ISM survey

6
Indicators of current spending

• Confidence indicators
• Michigan Index of Consumer Sentiment
• USB Investor Optimism survey