The Retirement Corporation of America

Tracking Our Always-in-Motion Economy

THE ECONOMY NEVER stands still. It is always in motion--always moving from boom to bust and back again.

•  The booms are called expansions. That means that the economy is growing--as it has done most of the time since they began keeping economic records around 150 years ago. Once the economy starts rolling, it tends to keep rolling. The average expansion period since the end of World War II has lasted three-and-a-half years.

•  The busts are called contractions or recessions. That means the economy stopped growing for at least six months. Counting the one that began early in 2001, we have had 32 recessions since the first recorded one began in June of 1857. They don't last long as a rule. The average recession since 1857 has lasted 19 months. The average recession since the end of World War II has lasted less than a year.

•  The combination of expansion and contraction is called the business cycle. It represents one complete turn of the economic wheel--from the peak of expansion past the bottom of contraction back to the peak of expansion again. The average cycle--top to bottom to top again--lasts roughly five years, give or take.

So most of the time, the economy keeps growing--adding jobs, adding to your spending power and adding to the earnings of American companies. Again, over the past 150 years, the economy has expanded four years of every five. That's why you take some risks to invest in the stock market--to earn your share of those growing earnings of American companies. Because the economy and stock market expand in most years, those business earnings grow as well. Your money invested in the stock market may not grow every year--but it will grow most years.

Suddenly a Dark Cloud Appears

So the economy expands in most years. But it doesn't expand every year. There are those recessions to think about. They don't happen all that frequently--but they do happen.

Mostly, they don't last long. The recession that began in July of 1990 lasted just eight months. The recession that began in January of 1980 lasted just six months.

But recessions do happen--taking away jobs, cutting your spending power, cutting into the earnings of American companies and cutting into the growth of your investment in the stock market. And sometimes recessions can get nasty. The recession that began in July of 1981 lasted 16 months. So did the recession that began in November of 1973.

What we call the Great Depression wasn't a single event but a series of economic events. It began in August of 1929 with a recession that lasted for nearly four years. After that came an expansion that ran for nearly four years. That was followed by a second recession that began in 1937 and lasted for more than a year. Officially, the Depression ended in 1938, although it took the wartime prosperity of the early 1940s to really get the economy back on track.

So mostly times are good--but not always. And you have to take that into account when you make your financial plans. Mostly the economy will be on your side--helping your savings and investments grow and helping you master your financial future. But sometimes the economy won't be so good and you have to take that into account as well when you make your financial plans.

Let's start the process with some lessons in why the economy behaves as it does--why the economic skies aren't blue and sunny all the time, why our economic clouds are occasionally heavy with rain.