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The Business Cycle

October 13, 2022
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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

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.

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 more balanced perspective on the overall cycle. During recovery, understanding whether the economy is at an early or late stage of the cycle may cause undue influence on 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 time. Understand that the economy will travel through these cycles, and that this is part of a larger process of the economy rebalancing itself. This awareness can help inform you, and your qualified financial representative, as you create your own financial plan, and as it withstands the pressure of time and change.

 

 

Investment Answers LLC is a financial advisory firm. Investment Advisory Services offered by Investment Answers Capital LLC. For the most updated Registered Investment Advisory disclaimer, please visit our website. The content is developed from sources believed to be providing accurate information. The information in this material is not intended to 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 references content developed and produced by FMG Suite to provide information on a topic that may be of interest, not in affiliation with Investment Answers. Edits to the original content are made by Investment Answers. These are the general views and understanding of Investment Answers and should not be construed as personalized investment or tax advice. The opinions expressed and material provided are for general information, and should not be considered a solicitation, or used for the purpose of avoiding any federal tax penalties.. Consult a qualified financial professional before making any financial decision. Original content and image, Copyright 2022 FMG Suite, used with permission by Investment Answers LLC.

 

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