The boom and bust, better defined as expansion and contraction, business cycles of the U.S. economy averaged 38.7 months in expansion and 17.5 months in contraction between 1854 and 2009. According to the National Bureau of Economic Research, there were 33 business cycles between 1854 and 2009, with each full cycle lasting roughly 56 months on average. The National Bureau of Economic Research defines a recession as “a significant decline in economic activity spread across the economy, lasting more than a few months, normally visible in real GDP, real income, employment, industrial production, and wholesale-retail sales.”
Historical Business Cycles
Business cycles have varied over time, and the data most relevant to the current period is from 1945 to 2009. During this period, the average expansion was approximately 58 months, and the average contraction was approximately 11 months. Expansion is the default mode of the U.S. economy, and the average expansion time period has continued to average longer over time. The longest expansionary period in U.S. history occurred from March 1991 to March 2001, a period of tremendous economic growth and substantial stock market gains.
Contractions, on the other hand, tend to be much shorter but can be very painful for the stock market and the labor market. Since 1900, the longest contraction period lasted 43 months; this period began in 1929 and is known as the Great Depression. After the Great Depression, however, the longest contraction period lasted only 18 months; this period began in 2007 and is known as the Great Recession. With that said, labor markets suffered substantial losses of jobs in that short 18-month window and major stock market indexes around the world lost more than 50% of their values during the period.