U.S. Business Cycle

Last Updated On: 2022-01-20

No single indicator can gauge where we are at in the business cycle. However, there are interrelated cycles in consumer sentiment, monetary policy, credit conditions, and inflation within a business cycle. When we analyze these cycles together, we can gauge where the economy is in any particular economic cycle. This process can provide a rough but accurate idea of whether it is early or late in the cycle.

Stages of the Business Cycle

To classify where we are in the business cycle, we first need to organize it into consistent, meaningful stages. We break the business cycle into six stages that carry different macroeconomic themes and trends. Stage One starts with a recession, then identifying the inflection point often called the recovery. After recovery, the economy enters a period of expansion. Early expansion is built around easy monetary policy, allowing the economy to expand rapidly. In the mid expansion stage, a shift in monetary policy from maximum accommodation to more restrictive to slow inflation with the early expansion stage and easy monetary policy. Stage five is when the monetary policy has become too restrictive, and profit margins drop. Eventually, the Federal Reserve overdoes it, and a recession is right around the corner.