The business cycle is the pattern of economy-wide expansions and contractions over time. Its four teaching phases are expansion, peak, contraction and trough. In the United States, however, official recession dates are determined by the National Bureau of Economic Research (NBER) using multiple indicators—not simply by counting two quarters of negative real GDP growth.
What the business cycle describes
The business cycle describes broad changes in economic activity across an economy. During an expansion, activity generally rises; during a contraction, it generally falls. Real gross domestic product (GDP) is an important measure of output, but it is not the only measure used to identify a turning point.
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The familiar four-phase diagram is a teaching model, not a timetable. Economic indicators do not all change at once, and short declines can occur during an expansion just as some measures may improve during a contraction. The cycle’s name does not mean it repeats at regular intervals. The Federal Reserve Bank of St. Louis puts it plainly: there is nothing ‘regular’ about the business cycle
(St. Louis Fed, March 1, 2023).
What are the four phases of the business cycle?
The phases describe the direction of broad activity and the turning points between its rising and falling periods.
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Expansion
Economic activity rises. Production, employment, incomes and sales tend to increase, although not every measure or household improves at the same pace. An expansion can continue even if activity has not yet returned to its level at an earlier peak.
Peak
The peak is the turning point between expansion and contraction. In the NBER’s monthly chronology, the peak month is counted as the final month of the expansion; the recession begins in the following month.
Contraction
Broad economic activity declines. In U.S. usage, a contraction identified by the NBER is the recession interval running from the month after a peak through the trough month.
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Trough
The trough is the low turning point between contraction and renewed expansion. The NBER counts the trough month as the final month of the recession, with expansion beginning the next month. Activity can still be weak at that point: a trough marks a change in direction, not a return to the previous peak.
Is a recession two quarters of negative GDP growth?
No—not as the official U.S. designation. Two consecutive quarters of falling real GDP is a common rule of thumb, but the Bureau of Economic Analysis says it is not an official definition of recession (BEA, “Recession: How is that defined?”).
The NBER defines a recession as a significant decline in economic activity spread across the economy and lasting more than a few months. Its Business Cycle Dating Committee considers monthly indicators including real personal income less transfers, nonfarm payroll employment, real personal consumption, inflation-adjusted manufacturing and trade sales, household employment, and industrial production. Quarterly real GDP and gross domestic income (GDI) also inform its assessment. The committee does not apply a fixed formula or assign an automatic weight to each measure (NBER, Business Cycle Dating; NBER, Business Cycle Dating FAQ).
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| Question | Two-quarter GDP rule of thumb | NBER U.S. dating approach |
|---|---|---|
| What does it examine? | Two consecutive quarters of negative real GDP growth. | Multiple indicators of broad economic activity, including monthly measures and quarterly GDP and GDI. |
| Does it establish an official U.S. recession date? | No. BEA says this is not an official designation. | Yes. The NBER committee identifies U.S. business-cycle peaks and troughs. |
| Is there a fixed formula? | It is a simple rule of thumb. | No. NBER says the committee has no fixed formula for weighting its measures. |
How does the NBER decide when a U.S. recession starts and ends?
The NBER committee looks for a significant, economy-wide decline across several measures, then identifies the peak and trough months. This differs from a diagram: the diagram shows the general sequence, while the chronology records turning points judged from observed data.
The committee waits for enough information to reduce the risk of dating a turning point based on data that may later be substantially revised. As a result, its announcements can come after the peak or trough itself. The dates are a historical record, not a real-time forecast or an advance warning of the next turning point (NBER, Business Cycle Dating FAQ).
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How long do expansions and contractions last?
There is no fixed duration. Historical averages and extremes illustrate how much cycles can vary, but they do not predict how long the next phase will last.
| Historical measure | What it describes | Source and qualification |
|---|---|---|
| About 65 months per expansion; about 11 months per recession | U.S. averages from 1945 through 2019. | Congressional Research Service (CRS), report updated October 3, 2024. |
| About 26 months per expansion; about 21 months per recession | U.S. averages from the 1850s to World War II. | CRS, report updated October 3, 2024. |
| 128 months | Length of the 2009–2020 U.S. expansion, described as the longest on record in the report. | CRS, report updated October 3, 2024. |
| 2 to 128 months | Range of contraction and expansion durations, respectively, among cycles tabulated for 1980–2020. | Federal Reserve Bank of St. Louis, 2023; sample range, not a full-history average or forecast. |
These durations describe past U.S. cycles, not a schedule. For example, the 2009–2020 expansion lasted far longer than the postwar average, while the February–April 2020 contraction lasted two months under the NBER chronology, as reported by CRS.
Independent reader supportYour contribution helps us test, update, and keep practical guides available for everyone.Why does a business cycle turn?
There is no single cause that explains every expansion or recession. Shocks can affect demand—the willingness of households and businesses to spend—or supply, the economy’s ability to produce goods and services. Financial-market disruptions, international disturbances, technology changes, energy-price shocks, shifts in confidence and policy actions can all play a role (CRS, Introduction to U.S. Economy: The Business Cycle and Growth; St. Louis Fed).
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If households become more cautious, they may save more and spend less. If businesses lose confidence, they may delay investment. Lower spending can reduce sales and production, prompting firms to cut hiring or employment. This is one possible chain, not a sequence every recession follows.
Supply can be disrupted
An energy-price shock, international disruption or other supply shock can make production harder or more expensive. Such a disruption can also affect demand and activity elsewhere in the economy.
Policy can influence activity
Policy actions, including monetary policy intended to restrain inflation, can affect borrowing, spending and investment. Their effects interact with other conditions; a cycle does not turn simply because an expansion has reached a certain age.
What the business cycle means for households
The cycle is a way to understand broad economic conditions, not a forecast of what will happen to any one person’s finances. Employment, income and prices can move differently across industries, regions and households. A recession designation is also retrospective: because official dates can be announced with a lag, it is not a signal that arrives precisely when conditions begin to change.
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For historical U.S. recession dates, consult the NBER chronology. For a broader explanation of U.S. cycles, including their phases, causes and historical measures, see the CRS overview. These U.S.-specific dating conventions should not be assumed to govern every country.
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