A comparison of two business cycle dating methods

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Thus, the unemployment rate is often a leading indicator of the business-cycle peak.

For example, the unemployment rate reached its lowest level prior to the December 2007 peak of activity in May 2007 at 4.4 percent and climbed to 5.0 percent by December 2007.

The NBER business-cycle chronology considers economic activity, which grows along an upward trend.

As a result, the unemployment rate often rises before the peak of economic activity, when activity is still rising but below its normal trend rate of increase.

A: It's more accurate to say that a recession–the way we use the word–is a period of diminishing activity rather than diminished activity.

We identify a month when the economy reached a peak of activity and a later month when the economy reached a trough.

Q: Why doesn't the committee accept the two-quarter definition?

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The committee places real Gross Domestic Income on an equal footing with real GDP; real GDI declined for six consecutive quarters in the recent recession.

The time in between is a recession, a period when economic activity is contracting. As of September 2010, when we decided that a trough had occurred in June 2009, the economy was still weak, with lingering high unemployment, but had expanded considerably from its trough 15 months earlier.

Q: How do the movements of unemployment claims inform the Bureau's thinking?

Third, we consider the depth of the decline in economic activity.

Recall that our definition includes the phrase, "a significant decline in activity." Fourth, in examining the behavior of domestic production, we consider not only the conventional product-side GDP estimates, but also the conceptually equivalent income-side GDI estimates.

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