I. Business cycles describe the fluctuations in business activity over time.

Graph from Wikipedia	The Dow Jones Average 1900- 2004 also followed a cycle. Chart from minyanville.com
From The Big Picture blog of January 9, 2008	April of 2008

A. Recession: commonly accepted definition is two consecutive quarters of negative growth in Real GDP.     B. Why business activity fluctuates          1. Inventory Recession: Excessive optimism causes inventories to over expand and eventually they must be worked              down causing a recession. Computers have made easier to track inventory and made this type of  recessions less likely.           2. Rolling Recessions: Economic downturn is limited to areas or sectors of the economy.               a. Economic activity eventually increases but by then other areas and sectors are in recession.               b. International competition has increased the occurrence of this type of recession as sectors                   such as steel, autos, and recently computers have been affected.         3. Innovation Cycle: railroads, computers, bio-technology         4. Political Events: wars, international trade         5. Misuse of Monetary and Fiscal Policy: government creates and/or borrows an incorrect amount of money         6. Non-cyclical Fluctuations            a. Seasonal variation: Christmas buying rush, spring construction             b. Long-Term Secular Trends: the expansion or contraction in the level of economic activity over a long period                 of years (the dark ages, the industrial revolution) For more visit Long Waves Theories of Development                from the Kunter Krumme, U. of Washington.     D. Durable Goods have a long useful life (houses, equipment, etc.) Sale of durable goods contract substantially during          a recession as their purchase may be easily postponed.     E. Leading, coincidental, and lagging indicators are measures such as the unemployment rate which respectively          change before, with or after general economic activity. Economists use these indicators to predict future economic activity.     F. Visit Business Cycle data since 1854 National Bureau of Economic Research.     G. Visit  Business Cycle Business Cycles Empirical Issues from The History of Economic Thought Website for more information on business          cycles    H. Great Depression by Robert J. Samuelson, the Concise Encyclopedia of Economics         1. Amity Shales on the Great Depression, On EconTalk, Russ Roberts interviews Amity Shlaes, Bloomberg columnist and visiting senior fellow             at the Council on Foreign Relations. She talks about her new book, The Forgotten Man: A New History of the Great Depression.            The podcast discusses Herbert Hoover, Franklin Delano Roosevelt, the economics of the New Deal and the class warfare of the 1930s        2. The Great Depression, On EconLog and in his column at TCS Daily, Arnold Kling also focuses on some of Shlaes's observations            adding thoughtful insights.     I. Current Business-Cycle Conditions from American Institute for Economic Research (AIER)     J. Slide Show: A Business Cycle Ends, and Many U.S. Workers Lose Ground Business Week         reviews the latest business expansion ending in early 2008.     K. On the Economy CNBC Video, April 10., 2008vAn overview of the economy with Joseph Stiglitz, a Nobel Prize-winning economist,         and Mohamed El-Erian, co-CEO of PIMCO     L. These books have opinions on the long-term secular trend of the United States.

See Understanding Contrary Indicators for more information.

Interesting Links Leading Indicaters US LADING ECONOMIC INDICATORS  AND RELATED COMPOSITE INDEXES FOR APRIL 2008 Conference Board U.S. Business Cycle Indicators Leading Indicaters from conference-board.org/pdf Index of Leading Indicators – Premature to Rule out Recession Asha G. Bangalore Northern Trust, May 19, 2008 http://tinyurl.com/4gma4w LEI and KRWI - It's Different This Time? Paul KasrielNorthern Trust, April 21, 2007http://www.safehaven.com/article-7404.htm RECESSION IMMINENT? BOTH THE LEI AND KRWI ARE FLASHING WARNINGPaul L. KasrielNorthern Trust, March 22, 2007    http://www.financialsense.com/economy/northern/kasriel/2007/0322.html Leading Indicators Show Economy Remains SluggishTHE ASSOCIATED PRESS,  May 19, 2008  http://www.nytimes.com/aponline/business/AP-Economy.html Leading Economic Indicatorshttp://globaleconomicanalysis.blogspot.com/2007/01/leading-economic-indicators.html

II. Three types of unemployment
     A. Frictional is caused by time lags in the operation of labor markets.
          1. Workers are between employment because they have been fired, are changing careers, are seasonal workers, 
              have been temporarily laid off, etc.
          2. Short-term, inevitable, temporary, and is eliminated with time.
     B. Structural is caused by changes in consumer demand and technology.
         1. Result is an oversupply of workers with a particular skill. 
         2. This unemployment is often concentrated in a particular area, associated with a particular industry, and is often permanent. 
         3. Increased economic activity will not decrease this type of unemployment as training and/or relocation are required.
         4. Happened in the 1970's and early 1980's as consumers decided to buy small foreign built cars and other products
             produced in the Rust Belt. Now it is happening on each coast because of defense cutbacks, throughout industry as
             restructuring is needed because of foreign competition.

    C. Cyclical
         1. Caused by a lack of total demand at the end of an economic expansion 
         2. Temporary
         3. Recession of the early 1990's was due to a drop in demand caused by a debt buildup in the 1980's by individuals,
             businesses, and the federal government. Apprehension caused by high structural unemployment of both blue and 
             white collar workers slowed the recovery.
         4. Recession of 2001 was caused by debt build up of individuals resulting from the long period of prosperity and the stock 
             market bubble, excess capital investment caused by Y2K and internet optimism, and September 11.  
         5. Recent unemployment data  provided by the federal Reserve Bank of Saint Louis. 
         6. U.S. Unemployment, 1960-Present from Bradford DeLong's( USC Berkley) is a dynamic presentation. 

Data reported in The Big Picture Economics Blog.

IV. Inflation       A. An increase in prices is measured by a price index such as the Consumer Price Index (CPI) and Producer Price  Index (PPI).       B. The PPI measures the change in wholesale prices.       C. The PPI is a leading indicator for CPI as wholesalers can usually pass price changes on to retailers who pass them to            consumer.            1. Recent increases in foreign competition made passing price increases on more difficult.            2. The internet had the same kind of affect in the late 1990's.        D. The inflation rate for a year when a basket of consumer goods increase from $400 to $420 would be calculated as follows.       E. Recent inflation data provided by the Department of Labor.         F. U.S. Inflation, 1960-Present from Bradford DeLong, of USC Berkley, is a dynamic presentation.

V. Causes of inflation
     A. Demand-pull inflation
         1. Increases in C + I + G + X_N will cause GDP to increase.
         2. As the economy nears full employment, the prosperity caused by high employment increases demand and put
             upward pressure on prices.
         3. When this happens, the economy is said to be overheated.
     B. Cost-push inflation
         1. As the economy approaches full employment factor resources become scarce allowing their owners to increase prices.
         2. Supply-side shocks can cause high resource prices even if demand for resources is low, i.e., OPEC's two oil  
             embargoes of the 1970's

VI. Economic effect of inflation
      A. Both income and resource allocations are affected by inflation as the market tries to adjust to the loss in value
           caused by inflation.
          1. High gas prices in the 1970's caused a switch to small cars and many people bought wood stoves.
          2. Low gas prices in the 1990's made RV's less expensive to run.
      B. Debtors (homeowners, businesses, government) are helped by high inflation because they pay back with dollars 
          worth less than those borrowed.
      C. Creditors are hurt by inflation as they are paid back in less valuable dollars. Those on a fixed income are also 
           hurt by the cheaper dollars. 
      D. Cost-of-Living Increases (COLA's) were instituted in the 1970's to negate the severe effects of that period's high inflation.
           For more information visit Cost of living from Wikipedia.
      E. Deflating GDP
          1. Inflation can be taken out of growth in GDP by expressing later year production at earlier year prices. 
          2. In the following chart, letters Q, P and T are quantity, price per unit and total respectively.

	1980			1990			1990 Production  at 1980 Prices			From From Inflationdata.com
Production	Q	P	T	Q	P	T	1990 Q	1980 P	T
Shirts	1	10	10	2	20	40	2	10	20
Movies	2	3	6	3	5	15	3	3	9
GDP			16			55			29
Note : Output more than tripled in "nominal" terms but in real terms output increased by 81.25% (29-16)/16

VII. Shadow Government Statistics  and Grossly Distorted Procedures provides an interesting view of government calculated economic statistics.