Understanding Business Cycles

How economies swing around their long-run path: the three ways of defining a cycle, the four phases and what households, firms, prices and markets do in each, how credit cycles amplify booms and busts, how labour, capital spending, inventories, consumers and housing move over the cycle, and how leading, coincident and lagging indicators, surveys, nowcasts and diffusion indexes help analysts locate the economy in the cycle.

1. 1. What a business cycle is: classical, growth and growth rate cyclesA business cycle is a recurring but irregular swing in broad economic activity, and whether you date its peaks and troughs by the level of output, its gap to trend, or its growth rate changes when the turning points appear.Free13 min
2. 2. The four phases, recessions and market behaviourMeasured against potential output, the cycle runs through recovery, expansion, slowdown and contraction, and each phase has a typical pattern of spending, hiring, inflation and asset prices that analysts use to locate the economy.Video · 6 min15 min
3. 3. Credit cyclesCredit cycles are the swings in how easily and how cheaply the private sector can borrow; they feed into property and investment, amplify business cycles, last longer than them and, at strong peaks, often precede banking crises.11 min
4. 4. Labour, capital spending, inventories, consumers and housingOver the cycle, firms adjust hours before headcount, cut light equipment before big projects and let inventories swing sharply, while consumer credit, housing and trade follow their own predictable rhythms that analysts read through specific indicators.15 min
5. 5. Leading, coincident and lagging indicatorsEconomic indicators are grouped by whether their turning points come before, with or after the economy's, and reading the three groups together, often through composite indexes, tells an analyst where the cycle is and where it is heading.Video · 6 min15 min
6. 6. Surveys, big data, nowcasting and diffusion indexesBeyond official statistics, analysts track the cycle with business and consumer surveys, big-data composites built by principal components, real-time nowcasts of current GDP, and diffusion indexes that show how broadly a move is shared.13 min
7. 7. Integrated cases: reading the cycle from a data panelA cycle case gives you a panel of indicators, a labour table and a few numbers, and asks you to sort, count, name the phase and explain the lags without mixing up the turning-point language.15 min