Worldwide economic output has grown for literally thousands of years. U.S. economic output has grown since before the United States officially became a country. The long-term average annual rate of worldwide growth has been about 2 percent. U.S. average annual growth has been a bit higher, maybe 2.5 percent. The economy does not tend to grow steadily at these rates but ebbs and flows around the trend line. See the graphic below.
The economy grows for a few years at rates that exceed the long-term trend, and then slows down or even contracts for a few years and logs rates of economic output below the long-term trend. Every six and half years or so the economy contracts or posts negative growth. If negative growth (aka contraction) occurs for two calendar quarters in a row, it is deemed a recession. A depression is simply a particularly long or deep period of economic contraction.
Historically, periods of broad economic expansion have tended to last longer than periods of economic contraction. About five or six times longer. Periods of expansion tend to last about six and a half years, give or take a couple of years. Periods of contraction (recession) tend to last about a year, give or take six months.
This rhythmic expansion and contraction of the economy over time is referred to as the economic cycle. It’s also known as the business cycle. The state of the economy, whether expanding, contracting, or stagnating, is measured by “output,” or the total value of all goods and services produced. Economists measure economic output — and rates of growth — for the world, for countries and for regions within countries. A widely used measure of the output of a nation is gross domestic product (GDP), a measure of all goods and services produced during a period of time within a country.
In the United States, the agency that officially measures and releases data on the economy is the National Bureau of Economic Research (www.nber.org). NBER has officially announced that the current recessionary economic period we are in began December 2007. Judging from past recessions, this one should have ended around December 2008, give or take maybe six months. Now, of course, it’s spring 2010. Based on past recessions, we should be well out of this one by now — well into a broad economic expansion. But we’re not, and that is why this recession is called the worst since the Great Depression.
The only relevant data point for you as a business owner is that we are either out of the recession already (but don’t know it yet because NBER announces these things typically three to six months in arrears) or we are soon to be. Your sales projections and strategic plans should reflect this.
This article originally appeared in The Business Owner Journal, the periodical of choice for owners of small and midsize private businesses. All rights reserved, D.L. Perkins LLC. © 2012.
This publication is intended to provide general information on the subject matters covered. It is sold and distributed with the understanding that neither the publisher nor any distributor or advertiser is engaged in providing legal, tax, insurance, investment or other professional advice. The advice of a qualified professional should be sought before any reader applies a concept presented herein to his or her particular situation or business.
D.L. Perkins, LLC is solely responsible for this content.
