Growing Economy

In a growing economy, consumer demand is increasing, overall, more than it is decreasing. Since there is increasing demand, producers want to increase supply. To do this, producers have to increase their consumption of other goods and services, including labor. This means there is greater demand for labor, so the labor pool, on the whole, can raise the price of their product (in other words, people can get paid more for their work).

Working people with higher incomes have more money to spend on other products, which increases demand even more. If demand is high enough, the price of some things goes up. For example, if there are more travelers than there are seats on airplanes, airlines can raise their prices to decrease demand (this could lead to high inflation if it happened across the board, but in the past decade the U.S. economy has shown the ability to grow steadily while keeping inflation under control). In a growing economy, some consumers and producers will not do well, but most will, so the general feeling about the economy is good.

In such an economy, a lot of consumers tend to make investments: They buy things, such as stock in a company, that they plan to sell at a later date. They know that if the economy keeps going the way it has been, their investments will increase in value. These consumers figure they will make money just by holding onto the product for a while.

History has proven that an economy will not keep expanding indefinitely -- eventually it will contract for a while. A prolonged period of contraction is known as a recession. If the recession lasts long enough, and is particularly severe, it is known as a depression. In the next section, we'll find out what happens in this sort of economy.

NBER ; United States Recession Criteria

In the US, the judgment of the business-cycle dating committee of the National Bureau of Economic Research regarding the exact dating of recessions is generally accepted. The NBER has a more general framework for judging recessions:

The 2001 recession was announced by the NBER in November 2001[9], which later turned out to be the truth. Thus the recession ended the month it was announced by the NBER. In July 1981 the NBER declared an end to a six-month recession from January to July 1980, the last year of Jimmy Carter's presidency. For the 1981-82 recession, which was during President Reagan's first term, the NBER announced the July 1981 peak in January 1983, and the November 1982 trough in July 1983.[10]

Economist Robert J. Gordon, a member of the NBER committee has stated that any announcement about the start of a new recession starting in 2008 is unlikely before the last few months of 2008 at the earliest[11].

A recession is 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. A recession begins just after the economy reaches a peak of activity and ends as the economy reaches its trough.

Because of the way a recession is defined, the beginning (peak in the economic cycle) or end (trough) of a recession can only be identified after the change in the trend has been present for several months.