1. The Business Cycle

2. Symptoms and Predictions
Index of leading indicators:
Average Workweek
Initial Claims for Unemployment Insurance
New Orders for Consumer Goods
Stock Market Prices
Contracts and Orders for New Plant and Equipment
Building Permits for Houses
Vendor Performance
Change in Unfilled Orders of Durable Goods
Change in Sensitive Raw Material Prices
The Money Supply
Index of Consumer Expectations

3. Wall Street Journal Case Study

4. The Business Cycle
Business Cycle: The repetitive pattern of alternating good and bad economic times typical of an industrial economy
Expansion: period of time characterized by rising employment, wages, and income
Recession: period of time characterized by falling employment, wages, and income
Propelled by individuals’ countless daily decisions

5. Dumb Economic Joke: It’s a recession when your neighbor loses his job
Dumb Economic Joke: It’s a recession when your neighbor loses his job. But when you lose your job, it’s a depression.

7. The Business Cycle’s Rhythm
During Industrial Era: 1870s – 1930s
24 months – average expansion
22 months – average recession
Since 1945
52 months – average expansion
10 months – average recession

11. Significant U.S. Recessions
– Panic of 1873 / Great Strikes
– Panic of 1893
– Post-World War I
– Great Depression
– Reconversion
– Eisenhower’s Administration
– Energy Crisis / Watergate
– Bush / Clinton Recession
– dot.com bubble bursts
2008-pres. - ???

12. Relationship to Inflation
Inflation/Deflation
Expansions usually accompanied by inflation
Inflation usually increases dynamically during an expansion
Excessively high inflation is what usually sparks a recession
Disinflation characterizes recession
Interest rates from banks often an indicator of economic health

13. The Trick of Timing Stock Markets and Investments
Stock market’s relationship to business cycle is indirect
The “lag” – often don’t know a recession is occurring until it’s been underway for some time
Markets’ Anticipation
Shrewd investors “sell high and buy low”
Most successful investors sell investments before a recession begins
Plateau and dip in markets often indicate a looming recession