Business cycles

Business cycles are intervals of general expansion followed by recession in economic performance. The changes in economic activity that characterize business cycles have important implications for the welfare of the general population, government institutions, and private sector firms. There are many definitions of a business cycle. The simplest defines recessions as two consecutive quarters of negative GDP growth. More satisfactory classifications are provided first by including more economic indicators and second by looking for more data patterns than the two quarter definition. In the United States, the National Bureau of Economic Research oversees a Business Cycle Dating Committee that defines a recession as "a significant decline in economic activity spread across the market, lasting more than a few months, normally visible in real GDP, real income, employment, industrial production, and wholesale-retail sales." Business cycles are usually thought of as a medium-term phenomenon. They are less related to long-term trends that arise from slowly changing factors, such as technological advances. Furthermore, a one-period change that is unusual over the course of one or two years is often regarded as noise; examples include a worker strike or an isolated period of severe weather. The individual episodes of expansion and recession occur with varying duration and intensity over time. Typically, their periodicity ranges from about 2 to 10 years. There are many sources of business cycle movements such as rapid and significant changes in the price of oil or variation in consumer sentiment that affects overall spending in the macroeconomy and thus investment and firms' profits. Usually such sources are unpredictable in advance and can be viewed as random shocks to the cyclical pattern, as happened during the 2008 financial crisis or the COVID-19 pandemic.