Question

What part of the business cycle the U.S. economy is currently in 2020? Why? What factors lead you to this conclusion?

Answer 1

It shall be noted that the business cycle has four phases:

1) Expansion: The economy grows a healthy 2% to 3%. Stocks enter a bull market.

2) Peak: The economy grows more than 3%. Inflation sends prices up. There are asset bubbles. The stock market gets in a state of "irrational exuberance."

3) Contraction: Economic growth slows but isn't negative. Stocks enter a bear market.

4) Trough: The economy contracts, which signals a recession.

The U.S. economy entered the contraction phase of the business cycle in February 2020. Prior to that, the economy had been in the expansion phase for 11 years. The last trough was in June 2009.

There are main indicators of the same:

1) In response to the COVID-19 pandemic, state governments closed non-essential businesses in March. By April, there were 23.1 million unemployed, sending the unemployment rate to 14.7%

2) The sectors such as arts, entertainment, and recreation services (down 55%) and accommodation and food services (down 47%) were hardest hit due to COVID-19 lockdown.

3) GDP growth rate went in negative territory, that is -5.3% Y-o-Y growth rate