Investment Read Time: 3 min

The Business Cycle

What has upswings and downturns, troughs, peaks, and plateaus? Though such terms could easily describe a roller coaster ride, they are also commonly used to describe the business cycle.

The business cycle – also known as the economic cycle – refers to fluctuations in economic activity over several months or years. Tracking the cycle helps professionals forecast the direction of the economy. The National Bureau of Economic Research makes official declarations about the economic cycle based on specific factors, including the growth of the gross domestic product, household income, and employment rates.

Recovery & Recession

Business Cycle

An upswing, or recovery, occurs when the economic indicators improve over time. A recession occurs when the same indicators go through a contraction. A particularly long or severe recession is referred to as a depression.

Despite being called a cycle, it’s important to understand that the business cycle is not regular or even cyclical. Its pattern resembles the movement of waves, and those waves don’t consistently undulate at set, periodic intervals. Some recoveries have lasted several years, while others are measured in months. Recessions, too, can last for a number of years or be as short as a few months.

Moving in Waves

Wave Chart

Stages of Cycle

So, how should investors look at information about the business cycle?

Investors who understand that the economy moves through periods of recovery and recession may have a better perspective on the overall cycle. During recovery, understanding whether the economy is at an early or late stage of the cycle may influence certain investment decisions. Conversely, during a recession, deciphering whether the economy is passing through a shallow or deep cycle may be influential as well.

The business cycle will transition from recovery to recession – and recession to recovery – over several months. Understanding that the economy travels through cycles may help you put current business conditions in better perspective.

The content is developed from sources believed to be providing accurate information. The information in this material is not intended as tax or legal advice. It may not be used for the purpose of avoiding any federal tax penalties. Please consult legal or tax professionals for specific information regarding your individual situation. This material was developed and produced by FMG Suite to provide information on a topic that may be of interest. FMG Suite is not affiliated with the named broker-dealer, state- or SEC-registered investment advisory firm. The opinions expressed and material provided are for general information, and should not be considered a solicitation for the purchase or sale of any security. Copyright FMG Suite.

 

Related Content

Spotting Credit Trouble

Spotting Credit Trouble

The wise use of credit is a critical skill. These 10 questions will help you assess your skill level.

Investment Challenges of the Affluent Investor

Investment Challenges of the Affluent Investor

Affluent investors face unique challenges when putting together an investment strategy. Make sure you keep these in mind.

Inventorying Your Possessions

Inventorying Your Possessions

Creating an inventory of your possessions can save you time, money and aggravation in the event you someday suffer losses.

 

Have A Question About This Topic?







Thank you! Oops!

Keep Your Umbrella Handy

Umbrella liability can be a fairly inexpensive way to help shelter current assets and future income from the unexpected.

Mortgages in Retirement

Explore the benefits and drawbacks to paying off your mortgage prior to retirement with this article.

Critical Estate Documents

Sound estate management includes creating financial and healthcare documents. Here's an inside look.

View all articles

Potential Income from an IRA

Estimate your monthly and annual income from various IRA types.

Self-Employed Retirement Plans

Estimate the maximum contribution amount for a Self-Employed 401(k), SIMPLE IRA, or SEP.

Capital Gains Tax Estimator

Use this calculator to estimate your capital gains tax.

View all calculators

Managing Your Lifestyle

Using smart management to get more of what you want and free up assets to invest.

5 Smart Investing Strategies

There are some smart strategies that may help you pursue your investment objectives

Your Cash Flow Statement

A presentation about managing money: using it, saving it, and even getting credit.

View all presentations

When Do You Need a Will?

When do you need a will? The answer is easy: Right Now.

Saving for College 101

Here’s a crash course on saving for college.

RE: Retirement

How does your ideal retirement differ from reality, and what can we do to better align the two?

View all videos