Where We Fall on the U.S. Business Cycle

I hope you like to ski- “cause we”re going down hill.

To determine where the United States is placed on the economy, one must observe the business cycle. A business cycle refers to the fluctuation of ups and downs of an economic activity. (1) It is period of macro-economic expansion followed by a period of contraction. (1) There are 4 phases to the business cycle: Expansion/Recovery, Peak, Contraction/Recession, and Depression. (4)

There are seven economic indicators that will be used to determine where the United States economy falls on this business cycle. These are: GDP, Unemployment, CPI, Consumer Confidence, Index of leading Indicators, Capacity Utilization, and Durable goods.

The first calculation to look at for determining where the United States falls on the business cycle, the latest GDP calculations must be used and trend lines be found. GDP, or Gross Domestic Product, is the dollar value of all final goods and services produced in a country, but not necessarily sold, in one calendar year. (2) For the year 2008 GDP values constantly decreased at an increasing rate. Q1= 3.5%, Q2= 4.1%, Q3= -.4%, Q4=-3.8%. (3) This trend shows that our GDP is going down faster and faster.

The second economic indicator to look at is unemployment rates. Throughout the year 2008 unemployment rate has been increasing. In January the unemployment rate was at 4.9%, April was 5%, July was 5.8%, July was 5.8%, October was 6.6%, December was 7.2%, and then January 2009 it was at 7.6% the highest it has been since the great depression. This points towards an economic recession. (3)

The third indicator to look at is Consumer price index. This basically is an index for how fast prices go up for things. September the CPI was at 0%, October was -1%, November was -1.2%, December -0.7%. This shows deflation in our economy. Once again pointing towards an economic recession. (3)

The fourth indicator looks at consumer confidence. In December it was at 38.6 and January 2009 it was at 37.7. (7) This shows that the GDP is going down pointing towards an economic recession.

The fifth indicator to look at is the Index of leading economic indicators. October is at 99.6, November is 99.2, December is 99.5. This shows the Indicators are weakening and strengthening leaving an unstable economy.

The sixth indicator to look at is industrial production. Industrial production is the total output of United states factories and mines. In July it was 111.2, August was at 109.8, September was at 105.2, October was at 107.1 November was at 105.7, December was at 103.6. In one year time from December 2007 to December 2008 there was a -7.8% change in industrial production.(8)

The last indicator to look at is new residential sales for the year 2008. This is important to look at because ti shows how much consumers are willing to risk at this point and where there confidence falls. In April it was at 542 (thousands of houses), May was at 515, June was at 499, September was at 434, November was at 388, and this last December was at 331. From December 2007-December 2008 there was a -44.8% drop in residential sales. (10) This shows a dramatic drop in new houses being developed and sold. People are not willing to buy houses because their houses may be lower then what they buy them for.

Taking a deep look at these seven indicators it is very safe to say that the United States economy is in a recession. A recession is where the real output GDP is decreasing and the unemployment rate is rising. Which can be seen from the previous paragraphs. Also there will be a decrease in industrial production and capital goods/durable goods are foregone.(5) On the recession line I believe we are at a very low point where soon we could climb into an area of depression. This is because a depression has to have unemployment rates that are very high, relative to historical change. The worst being the great depression in the 1920’s. The fact that our unemployment is rapidly increasing and our GDP is falling it is safe to say that we are sitting above a depression going downhill on this recession. That is why I hope you like to ski because we are going downhill and if these rates keep up we will continue going down the slopes of the mountain.