Business Cycle and Economic Indicators
The business cycle refers to the recurring pattern of expansion and contraction in an economy. It typically consists of four phases: expansion, peak, contraction, and trough. Economic indicators are statistics that provide insight into the current and future health of the economy, such as GDP, unemployment rate, and consumer confidence. These indicators help to track and analyze the business cycle.
6 Key excerpts on "Business Cycle and Economic Indicators"
eBook - ePubEconomics for Investment Decision Makers
Micro, Macro, and International Economics
- Christopher D. Piros, Jerald E. Pinto(Authors)
- 2013(Publication Date)
- Wiley(Publisher)
...However, other factors, such as money and inflation, are more specific to short-term fluctuations. This chapter is organized as follows. Section 2 describes the business cycle and its phases, explaining the behaviors of businesses and households that typically characterize phases and transitions between phases. Section 3 provides an introduction to business cycle theory, in particular how different economic schools of thought interpret the business cycle and their recommendations with respect to it. Section 4 introduces basic concepts concerning unemployment and inflation, two important economic policy concerns that are sensitive to the business cycle. Section 5 discusses variables that fluctuate in predictable time relationships with the economy, focusing on variables whose movements have value in predicting the future course of the economy. A summary and practice problems conclude the chapter. 2. OVERVIEW OF THE BUSINESS CYCLE Burns and Mitchell (1946) define the business cycle as follows: Business cycles are a type of fluctuation found in the aggregate economic activity of nations that organize their work mainly in business enterprises: a cycle consists of expansions occurring at about the same time in many economic activities, followed by similarly general recessions, contractions, and revivals which merge into the expansion phase of the next cycle; this sequence of events is recurrent but not periodic; in duration, business cycles vary from more than one year to 10 or 12 years. This long definition is rich with important insights. First, business cycles are typical of economies that rely mainly on business enterprises—therefore, not agrarian societies or centrally planned economies. Second, a cycle has an expected sequence of phases representing alternation between expansion and contraction. Third, such phases occur at about the same time throughout the economy—that is, not just in agriculture or not just in tourism but in almost all sectors...
eBook - ePubBusiness Forecasting
A Practical Approach
- A. Reza Hoshmand(Author)
- 2009(Publication Date)
- Routledge(Publisher)
...3 The Macroeconomy and Business Forecasts Nations seek economic growth, full employment, and price-level stability as their major macroeconomic goals. Business decisions are made in the context of the macroeconomy of a nation. Firms take their cues from the economic environment in which they operate. When favorable macroeconomic conditions prevail, businesses expand operation and output. Contractions in the economy generally lead to slower growth patterns. Long-run economic growth has not always been steady as factors such as inflation, unemployment, recession, and depression have impacted it negatively. As was pointed out in Chapter 2, long-term trends, seasonal variations, cyclical movements, and irregular factors combine to generate widely divergent paths for businesses in an economy. Given these conditions, how are businesses to predict future growth and contractions in the economy? In this chapter we will discuss specifically those cyclical linkages that bind the economy together during a typical business cycle, and how our knowledge of these linkages help us in making good forecasts at the industry and firm level. 3.1 Phases of the Business Cycle Economists use the term “business cycle” when they observe alternating increases and decreases in the level of economic activity, sometimes extending over several years. The duration and intensity of the cycle vary from cycle to cycle. Yet all business cycles display common phases, which are variously labeled by economists. A business cycle generally follows the four phases of peak, recession, trough, and recovery. Peak refers to the economic condition at which business activity has reached a temporary maximum and shows the onset of a recession or upper turning point. During this phase the economy is at full employment and the level of real output is at, or very close to, its capacity. It is expected that the price level will rise during this phase of the business cycle. Recession follows a peak in the economy...
eBook - ePubAnalyzing Modern Business Cycles
Essays Honoring
- Philip Klein(Author)
- 2017(Publication Date)
- Routledge(Publisher)
...Official business cycle peaks and troughs are indicated as well. The data are plotted logarithmically to reflect rates of change. It is clear that manufacturing production is better behaved during expansions than contractions. Production usually slows as expansions mature. But in recessions, the steepest rates of decline sometimes occur early in the downturn and sometimes late. Adjustment paths during recessions are diverse, suggesting—not unlike the theory of chaos just beginning to be applied to economics—that adjustment processes are complex once the economy turns down. This likelihood is, in fact, suggested by the leading indictor index which exhibits very short leads, if any, at troughs. Chart 4.3. Industrial Production—Manufacturing. A Summary Indicator Based on Business Cycle Dynamics As a result of the business cycle dynamics described here, there should be considerable informational content in production, inventory, and orders variables relating to the manufacturing sector. Variables for this sector are, in fact, well represented in the list of leading indicators. Six of the eleven leading indicators are so related; they are: New orders received by manufacturing, consumer goods and materials, 1982$; Contracts and orders, plant and equipment, 1982$; Average work week of production workers, manufacturing; Vendor performance; percentage of companies receiving slower delivery; Change in sensitive materials prices, percentage; Change in manufacturing inventories on hand and on order, 1982$. The six leading indicators reflect various aspects of demand for manufactured goods. All manufacturing orders are reflected in the indicators—those for consumer goods, for materials, and for capital equipment. All unfilled orders are inventories measured in the "on hand or on order" indicator. Unfilled orders are also reflected in the vendor performance indicator. Average weekly hours of manufacturing workers is a proxy for manufacturing production...
eBook - ePubAnalysing Modern Business Cycles
Essays Honoring Geoffrey H.Moore
- Philip A. Klein(Author)
- 2019(Publication Date)
- Routledge(Publisher)
...First, for theoretical and policy purposes, it is necessary to treat each business cycle as an individual. It is important to do so since each cycle varies from one to the next in respect to amplitude and duration; and each varies in the timing and nature of the changes of the co-movements of key variables, which contribute to the variations in amplitude and duration. Nevertheless, one is justified in studying business cycles as a group since “each cycle in some important ways in its decomposition into sectors and in the aggregate bears a close ‘family likeness’ to earlier cycles” (Boehm and Moore 1984, 35; see also Hicks 1950, 2). Secondly, interrelated with the first point, there are considerable but varying degrees of endogeneity from one business cycle to another as well as exogenous elements. Hence, business cycles cannot be explained entirely as the result of random events or unanticipated monetary shocks, as suggested by rational expectation theorists (Lucas and Sargent 1979, 14), or of random real shocks to technology as invoked by real business cycle exponents (Kydland and Prescott 1982; Long and Plosser 1983). The concept of the price-cost cycle is briefly reviewed. This recognizes an additional, largely endogenous force which helps to fill an important gap in business cycle theory concerning why the main business cycle in industrialized democracies is of relatively short duration. Thirdly, in formulating an adequate and acceptable theory, more explicit attention needs to be paid to the empirical evidence on business cycles. On the other hand, some empirical evidence itself, or at least the way it has been interpreted, may have contributed to a misunderstanding of the true characteristics of business cycles. This applies to both earlier theorists and the recent rational expectations and real business cycle theorists...
eBook - ePubUK Business and Financial Cycles Since 1660
Volume I: A Narrative Overview
- Nicholas Dimsdale, Ryland Thomas(Authors)
- 2019(Publication Date)
- Palgrave Macmillan(Publisher)
...Classical cycles are more judgement-free and so in some sense the business cycles facts that will emerge will be firmer. That means they may be more useful for comparing turning points across time such as in Romer’s analysis. But classical cycles may be less useful in themselves for policy purposes when judgements about trend inevitably have to be made. We discuss methods of deriving business cycle metrics under both methods in the next two sections. 3.3 Methods of Determining Turning Points in Classic Cycles The classic approach to chronicling the business cycle is to identify turning points such as peaks and troughs. This then defines two phases. The expansion phase is the period following the trough of the cycle to the next peak. The contraction phase is then the period following the peak to the trough. The full cycle is then the combined expansion and contraction phase. There are two general approaches to detecting turning points in classic cycles. The first takes what is effectively a graphical approach supported by algorithms to censor and refine the turning points obtained. The second involves applying a statistical model to the data. 3.3.1 The Graphic or Algorithmic Approach Under the simplest algorithmic approach a set of candidate peaks,, and troughs,, can be identified by looking at changes or the first difference in the level of output. A peak period P is defined if output is lower both before and after that period. A trough is defined if output is higher either side of that period. Figure 3.1 shows this graphically for the case of a smooth cycle. Fig. 3.1 Classical business cycle dating It may seem odd that the analysis of a classical cycle’s turning points is based on the change or growth of output, given the distinction made earlier with growth cycles...
eBook - ePubMeasurement, Quantification and Economic Analysis
Numeracy in Economics
- Ingrid H. Rima, Ingrid H. Rima(Authors)
- 2002(Publication Date)
- Routledge(Publisher)
...Chapter 10 The indicator approach to monitoring business fluctuations A case study in dynamic statistical methods Philip A.Klein INTRODUCTION When approaching the analysis of business fluctuations, conventional statistics courses are probably still organized so as to give the student the impression that the field consists of a stock of techniques. Acquire them and one is equipped for a lifetime of work in the statistical analysis of—in this case— business cycles. This chapter is devoted to demonstrating how wrong this conclusion would be. The approach taken in the early days of the National Bureau of Economic Research (NBER) by Mitchell, Arthur Burns, Geoffrey H.Moore and their associates is a monument to the cogency of the view that there is, in fact, a perennial need for statistical innovation in a dynamic research area such as cyclical instability. Here we shall focus on the recent past. It is a cliché to note that the economy is dynamic and that interrelationships critical in one cyclical crisis may vary both in their impact and in their importance in other crises. What is seldom realized is that statistical techniques optimally effective in exposing these changing critical relationships may themselves need to be varied or changed altogether over time. The most obvious example, perhaps, would be seasonal adjustments, the use of which was recognized but which were made only sporadically a generation ago. They were arguably less critical in earlier times, when inflation rates were less significant in their day in, day out impact on the functioning of the economy. Today, there are relatively few time series used in cyclical analysis which are not initially and routinely adjusted for seasonal variation...
