Economic expansion vs contraction.

In plain English

An expansion runs from the low point of a cycle to its peak, and a contraction runs from that peak to the next low point. Dating these turns is not automatic. A committee of economists reviews output, employment, income, and sales, then declares turning points well after the fact. That is why an expansion or a contraction is often named months after it began. Expansions in modern records have generally run longer than contractions, which is why long-run growth trends upward despite the interruptions.

01Why it matters

Job openings, raises, and credit availability all swing with these phases, and because turning points are declared late, you usually feel a contraction before anyone officially calls it one.

02The math, step by step

Say output rises for eleven straight quarters, then falls in two consecutive quarters, then rises again. The expansion covered those eleven quarters. The contraction covered the two down quarters, and the next expansion began with the following up quarter.

Illustrative example. The amounts here are hypothetical, chosen to show how the math works, not real quoted rates or figures.

03What this is NOT

04Receipts

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