Housing bubbles bursting, Lehman Brothers failing, a 0 billion dollar rescue package…it doesn’t seem so long ago.Yet the trough—which is to say, the end—of the last business cycle downturn was June 2009. Enough time to start asking when the next recession might happen.Some people like to point to the length of the recovery as a signal that we should start to get worried.
The NBER committee looks at a wide variety of indicators to decide the month in which the recession starts (the previous month is the “peak” (or high point of the cycle) and the month in which it ends (the previous month is the “trough” or low point). The average US business cycle expansion since the end of World War II has lasted 56 months.
Figure 1 shows the length of expansion after each postwar business cycle peak (identified by year).
The standard deviation of those 11 expansions is 35 months, which implies that there is a roughly 95 percent chance that an expansion will last between zero and 126 months.
It’s hard to draw a lot of conclusions from this—which itself is an important observation.
You might think that expansions have become longer over time, but notice the very long expansion of the 1960s (peak in 1969) and the very short expansion that ended in 1981.
It’s true that the last three expansions have been unusually long.
And the current expansion (not on the chart, since there is no peak yet) is already longer than most of the 1950s–70s expansions.
Modern business cycle thought—and data about recessions—suggests that business decision makers should look elsewhere to gauge where the economy might be headed.
Many people learn that a simple rule of thumb—two quarters of negative growth—defines a recession.
US economic researchers, however, use recession dates determined by a committee of economists who are affiliated with the National Bureau of Economic Research (NBER).
By agreeing to a common dating scheme, economists can devote their arguments to how and why, rather than when, recessions occur.