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1 1 (January 3, 2023)

handle is hein.crs/govejzx0001 and id is 1 raw text is: for ~ir essional Research Serif e Iii I a slaflv de ate into 914 S Updated January 3, 2023 Introduction to U.S. Economy: The Business Cycle and Growth On July 19, 2021, the National Bureau of Economic Research (NBER), an independent, nonprofit research group, announced that economic activity in the United States reached a post-COVID-19 pandemic onset trough in April 2020 and subsequently exited a two-month recession. Economic activity did not recover to its pre-pandemic level until mid-2021. This In Focus discusses the business cycle, how recessions are determined, and potential causes and effects of these fluctuations in the economy. What Is the Business Cycle? Over time, economic activity tends to fluctuate between periods of increasing economic activity, known as economic expansions, and periods of decreasing economic activity, known as recessions. Real gross domestic product (GDP)-total economic output adjusted for inflation-is the broadest measure of economic activity. The economy's movement through these alternating periods of growth and contraction is known as the business cycle. The business cycle has four phases: expansion, peak, contraction, and trough, as shown in Figure 1. Figure 1. Stylized Depiction of the Business Cycle ¾a / Expansion Contractin ½j -- u ,--t* Source: Congressional Research Service. As the economy moves through the business cycle, a number of additional economic indicators tend to shift alongside GDP. During an economic expansion, economy- wide employment, incomes, industrial production, and sales all tend to increase alongside the rising real GDP. Additionally, over the course of an economic expansion, the rate of inflation tends to increase, although the 2009-2020 expansion showed that inflation can remain low while the economy is growing. During a recession, the opposite tends to occur. All of these indicators do not shift simultaneously, but they tend to shift around the same time. Although these fluctuations in economic activity are referred to as a cycle, the economy generally does not exhibit a regular and smooth cycle as shown in Figure 1. Predicting recessions and expansions is notoriously difficult due to the irregular pattern of the business cycle; a single quarter of economic data can be too short to predict a trend, although this was not the case with COVID-19. During an expansion, there may also be short periods of decreasing economic activity interspersed within an expansionary period, and vice versa. Dating the Business Cycles Business cycles are dated according to the peaks and troughs of economic activity. A single business cycle is dated from peak to peak or trough to trough. NBER's Business Cycle Dating Committee is generally credited with identifying business cycles in the United States. NBER does not define recession as two consecutive quarters of declining real GDP, which is a popular metric used by the media. Rather NBER uses a broader definition of recession as a period where there is a significant and persistent decline in economic activity that is spread across the economy. NBER uses a number of indicators to measure economic activity, including real GDP, economy- wide employment, real sales, and industrial production. The COVID-19 recession technically lasted just two months. The most recently completed recession in the United States prior to the COVID-19 pandemic began in December 2007 and ended in June 2009, a total of 18 months. Since the 1850s, in the United States, 12 other recessions have lasted as long as or longer than the Great Recession; however, all these recessions occurred before the 1930s, when the Great Depression itself featured recessions-one of which lasted 44 months. Figure 2 presents real GDP from the first quarter of 1947 through the third quarter of 2022, along with recessions, as identified by NBER, represented with orange bars. Over this period, real GDP grew at a 3.1% average annual rate. Figure 2. Real GDP and Recessions I 947:Q I -2022:Q3 1947 2022 Source: U.S. Bureau of Economic Analysis. Note: Gray bars represent recessions as defined by NBER.

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