Business Cycle from Boom to Bust

A wall size chart that once hung in the lobby of the Federal Reserve Bank in San Francisco documented that for decades the standard and predictable business cycle lasted about 7 years from boom to bust to boom. Economy gets cooking. Goods and workers are in short supply. So prices and salaries rise. Inflation rears its ugly head. The Federal Reserve hikes interest rates to cool the economy. And we start all over again.

But judging by recent incredible swings in the stock market, you might cynically suggest the business cycle now lasts 7 minutes, not 7 years. A few weeks back the Dow posted its biggest drop in decades. Then just yesterday it jumps 10%, booking its second largest point gain ever. You can get whiplash just watching the ticker, as nervous investors sell on the rip and buy on the dip.

But don’t be fooled by all this volatility driven in part by 24 hour news channels breathlessly reporting the latest headlines with no real context. By example, pundits reported that consumer confidence is at an all time low. (You already knew that.) Market sinks. Then Boeing announces a tentative settlement with union workers, and economists predict the Fed will lower rates. Market booms.

Smart investors step back to look forward. In the last 80 years America has lived through 13 economic recessions, followed by 13 economic expansions. The economy stinks right now, but it will get better. It always has.

(Brian Banmiller is a national Business Correspondent for CBS News Radio, free lance writer and public speaker. The former television business news anchor in San Francisco can be reached at http://banmilleronbusiness.com/contact-brian .)