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The business cycle goes through 4 phases:
Economic expansion: RGDP is increasing
Economic Contraction: RGDP is declining
Peak: The economy reverses from expansion to contraction
Trough: The economy reverses from contraction to expansion
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Economic Recession: When the economy is in a downturn for at least six months. Growth rate is negative, unemployment increases, and price level is most likely to rise.
Economic Depression: A prolonged recession declared when the unemployment rate is 12% or more.
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Leading Economic Indicators
- Average workweek for manufacturing sector
- Average weekly unemployment insurance claim
- New orders for consumer good
- Index of consumer confidence
- New orders for non-defense durable goods
- Number of new building permits issued for private housing units
- Stock Prices
How these different areas are doing within their own sector help to show how the overall economy is performing. For instance, an increase in new orders for consumer goods would be a good sign for the economy because that means that a company is expecting to sell more and therefore gain more revenue as well as hire more workers to compensate. In contrast a low number value for consumer confidence would indicate that the economy is not performing as well as desired.
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