Business Cycle and NBER
Introduction
The business cycle refers to the downward and upward fluctuations of growth in the economy over time. The variations provide a comprehensive analysis of the United States economy.[1] It involves timely changes in the general rate of economic activity characterized by levels of employment and price fluctuations. Generally, business cycles have four significant stages: expansion, peak, contraction, and trough. Different enterprises experience these phases for a varied duration, such as months, years, or decades. Besides, the United States businesses rely on the Federal Reserve to manage their cycle using financial policies and the government to apply the use of the fiscal policy. Economic management depends on consumer confidence roles, including the expansion stage in the business cycle.
The Business Cycle Dating Committee of the National Bureau of economic research (NBER) implies a group of organized personnel that sustains a chronology of the United States business cycles. NBER determines the business cycle periods by incorporating the increasing rates of quarterly Gross Domestic Product. Besides, the committee applies economic indicators like employing people, actual individual income, including the production of the industrial and retail services. Therefore, analyzing this data consumes a lot of time, hence making the NBER show phases to the public after they have begun.[2] These personnel prepares information on the business fluctuations and notifies the public for an earlier remedial course of action.
The government controls and manages the NBER hence directing the research and presiding over meetings. Legislators use the committee’s ability, including elected officials, in influencing the fluctuations of the economic growth through expenditure and imposing taxes. Contextually, the government officials use expansionary monetary policy in ending a recession. Relatively, the nation’s central bank takes part in the NBER by decreasing interest rates towards the terminal of contraction or trough. They raise prices, which helps them manage an expansion, thus restricting it from sprawling to the peak.
The central role of the NBERS is to help maintain economic growth at an easily controlled rate by creating jobs for job seekers. Thus, for its efficient applicability, it emphasizes factors that cause each phase of the business cycle, such as supply and demand, capital, and consumer confidence.[3] The committee transforms the information researched and gathered into a comprehensive report that guides businesses and tax rates in the United States Gross domestic production.
NBERs outlines a chronology consisting of alternating dates of peaks and troughs found in economic activities such as market expansion. This committee maintains the business cycle by identifying the recession and expansion. Thus, recession implies a period between the peaks and a trough, which is the lowest level of business activity.
In determining dates, the committee examines and compares the behaviors and measures of noticed activities such as real Gross Domestic Products and industrial production. They may also consider indicators that fail to cover the whole economy like actual sales and the profits accrued for the company output.[4] Therefore, an applicable peak or trough for real sales or industrial production helps to formulate the overall height or trough dates or periods. However, when the factors that regularly affect the economy and not controlled during the expansion period, the peaks and troughs dates become undefined.
Contextually, expansion conforms to a period between a trough and a peak. Therefore, this committee maintains its balance because, during a recession, a noticeable drop in economic activity spreads across the economy, lasting from a few months to more than a year.[5] Similarly, for an expansion, the economy increases steadily, including its spread across the economy and it tends to last for several years.
Recession commences at the period economy attains at the peak or climax of economic activity and stops when the trough tends to get contacted by the economy. Recession becomes a broad contraction of the economy confined to several sectors as the committee emphasizes economy-wide measures of economic activity.
According to NBER, the recession period involves a short period of increase in productivity, followed by further decline. One of the most remarkable periods of the recession in the United States confirmed to exist in 1980 to 1982 when the committee displayed that contraction that had commenced in 1981 tended to be a separate full recession. The NBER committee meeting of twentieth September 2010 determined that a trough in the business activity had taken place in the United States economy in 2009. The channel marked the end of the recession begun in December 2007 and commencement of an expansion.
According to the 2009 report, the recession lasted for eighteen months, hence the longest time since World War II. During this period, the committee decided that any future decline of the economy would be a new recession and not a continuation of the one that occurred in December 2007, therefore leading to the recovery of date.[6]
The 2007 recession was a period of marked general decline that goy observed in the global, national economy. This period of depression consisted of vulnerabilities formed in the financial system. They were propelled by several triggering events that began with the bursting of the United States housing problems from 2005 to 2006. Besides, banks failed to provide funds to businesses and homeowners, thus paying down debts rather than borrowing. This aspect of banks led to the great recession that began in the United States in December 2007. [7]
Additionally, the crisis showed a rise in asset prices and associated sudden growth in economic demand. According to the United States Financial Crisis Inquiry Commission, the leading causes of this recession included; a marked widespread failure in financial regulation, many financial firms acting careless, and taking excessive risks, which led to a dramatic breakdown in corporate governance. Besides, too much borrowing and taking of risks by households and Wall Street led to a crisis between the financial system and Gross Domestic Product. Lastly, the recession occurred because of a lack of policy maker’s preparation for any financial crisis, because they lacked knowledge and understanding of the financial system they predicated.
The 2007 great recession displayed effects on the United States’ social, political, and economic stability. Firstly, the real Gross Domestic Product (GDP) began decreasing in the third quarter of 2008, which came immediately after the commencement of recession. Secondly, the capital investments showed a significant decline as its pace of collapse in residential investment dropped by 23.2% annually. Similarly, domestic demand decreased by 2.6% per quarter as compared to the earlier period of a 1.9% decline.[8]
In February 2009, the economists declared that the financial crisis had led to the manufacturing crisis. It caused a decline in industrial production that happened in export-based economies. Besides, the world was going through a period of de- globalization and encountering a system of the policy of protecting the domestic producers of products from foreign competitions through imposing tariffs, quotas, and duties.[9] The industrial development declined because private buyers from the Middle East and Asia were buying United States businesses such as industrial enterprises. The process of foreign buying of companies became easy because the recession had lowered prices if enterprises.
The housing market declined because, after the recession, the individuals and investors experienced a restriction in selling and renting their houses for a quick profit. They faced challenges as limits expanded to adjustable mortgages, which no longer became affordable for homeowners, including several mortgages default, which left investors and financial institutions depressed. There experienced an excessive supply of homes on the market that led to the depression of housing prices and slowed the growth of the new home building. Therefore, some homeowners decided to walk away due to low prices and depression instead of paying their mortgages.
Additionally, the credit bodies failed to loan business owners and investors. The considerable loss caused the banks to tighten their lending requirements, however many of them had remained bankrupt and merged with other institutions. Besides, many banks were crushed by the crisis because they housed more liabilities than assets.[10]
Conclusion
This paper has addressed the Business Cycle Dating Committee of the National Bureau of economic research (NBER), its functions, including how the dates tend to get determined. It has also focused on the recession period during the business cycle, the last recession in the United States, encompassing its aspects and effects. Therefore, the business cycle tends to be an essential phenomenon in both organizations and governments. Recession periods should get planned for by the NBER for efficient control of its after-effects.
References
Belongia, M.T., and Ireland, P.N., 2019. A classical view of the business cycle (No. w26056). National Bureau of Economic Research. Retrieved from: https://www.frbatlanta.org/~/media/Documents/research/seminars/2018/ireland-101018.pdf
Fernald, J.G., Hall, R.E., Stock, J.H., and Watson, M.W., 2017. The disappointing recovery of output after 2009 (No. w23543). National Bureau of Economic Research. Retrieved from: https://www.nber.org/papers/w23543.pdf
Jordà, Ò., Schularick, M., and Taylor, A.M., 2017. Macro financial history and the new business cycle facts. NBER macroeconomics annual, 31(1), pp.213-263. Retrieved from: https://www.journals.uchicago.edu/doi/pdfplus/10.1086/690241
Kalleberg, A.L., and von Wachter, T.M., 2017. The US labor market during and after the Great Recession: continuities and transformations. RSF: The Russell Sage Foundation Journal of the Social Sciences, 3(3), pp.1-19. Retrieved from: https://www.rsfjournal.org/content/rsfjss/3/3/1.full-text.pdf
Romer, C.D., and Romer, D.H., 2019. NBER BUSINESS CYCLE DATING: RETROSPECT AND PROSPECT. Retrieved from: https://www.bportugal.pt/sites/default/files/anexos/papers/ree201703_e.pdf
[1] Belongia, M.T., and Ireland, P.N., 2019. A classical view of the business cycle (No. w26056). National Bureau of Economic Research.
[2] Romer, C.D., and Romer, D.H., 2019. NBER BUSINESS CYCLE DATING: RETROSPECT AND PROSPECT.
[3] Kalleberg, A.L., and von Wachter, T.M., 2017. The US labor market during and after the Great Recession: continuities and transformations. RSF: The Russell Sage Foundation Journal of the Social Sciences, 3(3), pp.1-19.
[4] Belongia, M.T., and Ireland, P.N., 2019. A classical view of the business cycle (No. w26056). National Bureau of Economic Research.
[5] Fernald, J.G., Hall, R.E., Stock, J.H., and Watson, M.W., 2017. The disappointing recovery of output after 2009 (No. w23543). National Bureau of Economics.
[6] Jordà, Ò., Schularick, M., and Taylor, A.M., 2017. Macro financial history and the new business cycle facts. NBER macroeconomics annual, 31(1), pp.213-263.
[7] Kalleberg, A.L., and von Wachter, T.M., 2017. The US labor market during and after the Great Recession: continuities and transformations. RSF: The Russell Sage Foundation Journal of the Social Sciences, 3(3), pp.1-19.
[8] Fernald, J.G., Hall, R.E., Stock, J.H., and Watson, M.W., 2017. The disappointing recovery of output after 2009 (No. w23543). National Bureau of Economics.
[9] Belongia, M.T., and Ireland, P.N., 2019. A classical view of the business cycle (No. w26056). National Bureau of Economic Research.
[10] Jordà, Ò., Schularick, M., and Taylor, A.M., 2017. Macro financial history and the new business cycle facts. NBER macroeconomics annual, 31(1), pp.213-263.