What is the business cycle?
The business cycle, also known as the economic cycle, is the movement of the economy comprising expansion and recession periods.
Where have you heard about the business cycle?
The rise and fall of gross domestic product (GDP is often reported in the news, as well as manufacturing data and unemployment figures – these all help to indicate where an economy is on its cycle.
What you need to know about business cycles...
A business cycle is a repeating loop which goes through four phases trough (lowest point), expansion (growing), peak (the highest point) and contraction (falling or heading towards recession).
The average business cycle is said by America's National Bureau of Economic Research (NEBR) to last a little less than six years. Analysts try to predict when one stage will transition to the next and how quickly. This is not always easy - very few predicted the crash of 2008, for example, which led to the recession of 2008-2009. During each business cycle, the average expansion period is 58.4 months, according to the NEBR, while the average contraction period is 11.1 months.
Traders and investors need to factor the business cycle inside their strategies and consider how their assets are allocated according to economic changes. They should also be aware of cyclical companies those directly impacted by changes to the economy.