E C O N O M I C R E P O R T O F T H E P R E S I D E N T

The beginnings and ends of U.S. business cycles are determined well afterthe fact by the Business Cycle Dating Committee of the National Bureau ofEconomic Research (NBER), a private, nonprofit organization of professionaleconomists. For instance, the March 1991 trough that marked the beginningof the present expansion was not announced by the committee untilDecember 1992. In identifying the monthly dates for peaks and troughs, thecommittee looks for across-the-board movements in a large array of economicindicators such as output, income, and employment. Using this methodology,the NBER has determined that since 1854 there have been 31 expansionsand 31 recessions, representing 30 peak-to-peak business cycles, not includingtoday’s ongoing expansion. Although they are called “cycles,” these economicfluctuations are neither regular nor predictable. The longest expansion to datewas that of the 1960s, which lasted 106 months. (The current expansion isexpected to pass that mark in February 2000.) The longest contraction onrecord lasted over 5 years, from the October 1873 peak to the March 1879trough, whereas the shortest lasted only 6 months, from January to July 1980.The Changing Nature of Business Cycles in theUnited StatesForty-one years ago a former chairman of the Council of Economic Adviserspredicted that “The business cycle is unlikely to be as disturbing or troublesometo our children as it once was to our fathers.” Research quantifying the degree towhich business cycles have moderated over time confirms this view. If the severityof economic fluctuations is measured in terms of the output lost during arecession, the 14 recessions between 1900 and 1953 cost on average about threetimes as much as the 7 recessions since then. Even if the Great Depression of the1930s is excluded, recessions in the earlier period still were on average more thanone and a half times as severe as those in the 1954-99 period.Other evidence supports the notion that business cycle fluctuations havediminished over time. From 1982 to 1998, fluctuations in GNP and unemploymentwere on average about 20 percent smaller than they were from 1954to 1981, and fluctuations in inflation were less than half as large on average(Chart 2-14). With the caveat that data from the 19th century and the early20th century are less reliable than and not directly comparable to recent data,business cycle fluctuations appear to have become less severe in the secondhalf of the 20th century than in earlier periods.One other way to think about the postwar moderation of the business cycleis in terms of the length of time that the economy has spent in recession andthe amount of time it has spent in expansion. The average length of expansionsnearly doubled in the second half of the century, from about 2½ yearsduring 1900-53 to about 5 years since then, and the average length of economiccontractions has fallen from about 17 months to less than 11 months.Chapter 2 | 75