Business Cycle

Business Cycle

See Also:
Efficient Market Theory
Economic Indicators
Economic Value Added
Supply and Demand Elasticity
Porters Five Forces of Competition

Business Cycle Definition

The business cycle refers to recurring patterns of expansion and contraction in an economy. It is also called the economic cycle. During the expansion phase of the cycle of business, the economy is prospering and growing. During the contraction phase of the business cycle, economic activity is in decline. Economists and other interested parties watch certain macroeconomic indicators to gauge the condition of the economy and to try to forecast changes in the business cycle.
According to this cycle, economic activity expands until it reaches a peak, then it contracts until it reaches a trough, and then it begins to expand again. Measure business cycles from peak to peak. Furthermore, the duration of an average business cycle is around five years. However, they do not run like clockwork – the durations of the individual phases as well as the entire business cycles vary widely. In the U.S., these cycles are measured and peaks and troughs are declared by the National Bureau of Economic Research (NBER).

[button link=”” bg_color=”#eb6500″]Download The 7 Habits of Highly Effective CFOs[/button]

Phases of the Business Cycle

The business cycle consists of the four following phases: expansion, peak, contraction, and trough. During the expansion phase, also called the recovery phase, gross domestic product is growing, business activity is flourishing, and the economy is prospering. Expansion phases typically last around three to four years, but may be longer or shorter. The expansion phase ends at the peak, which is the high point of economic activity and the transition to contraction.
Economic contraction, also called recession, is often defined as two consecutive quarters of declining gross domestic product. During a contraction, business activity is slowing, unemployment is increasing, and the economy is struggling. A recession typically lasts about one year, but may be longer or shorter. The contraction phase of the business cycle follows the peak and continues till the trough. The trough is the bottom of the downturn, and represents the end of the contraction and the transition back to expansion.

4 Business Cycle Stages

1. Expansion
2. Peak
3. Contraction
4. Trough

Business Cycle Indicators

Economists watch certain macroeconomic indicators to gauge the condition of the economy. In the U.S., the Conference Board issues an index of several key economic indicators. There are three main types of economic indicators, including: leading indicators, lagging indicators, and coincident indicators.
Leading indicators considered predictors of economic trends. Analysts use these data to try to forecast changes in the business cycle. Examples of leading indicators include stock prices, building permits, average weekly initial claims for unemployment insurance and an index of consumer expectations.
Coincident indicators fluctuate simultaneously with the business cycle and reflect the current condition of the economy. Examples of coincident indicators include industrial production data, nonagricultural payroll data, and manufacturing and trade sales data.
Lagging indicators appear after the completion of economic trends and changes in the business cycle. Furthermore, they can be used to analyze the economy in retrospect or to confirm other economic data. Examples of lagging indicators include the following: average duration of unemployment, average prime rate charged by banks, and change in labor cost per unit of output.

Historic Data

To see historic business cycle data for the U.S., go to:

Conference Board Index

To see economic indicators issued by the Conference Board, go to:
To learn more financial leadership skills, download the free 7 Habits of Highly Effective CFOs.
business cycle

[box]Strategic CFO Lab Member Extra
Access your Flash Report Execution Plan in SCFO Lab. The step-by-step plan to manage your company before your financial statements are prepared.
Click here to access your Execution Plan. Not a Lab Member?
Click here to learn more about SCFO Labs[/box]
business cycle

Is Mexico the New China?

In the wake of the COVID-19 pandemic and escalating tensions with China, American companies are actively seeking alternatives to mitigate their supply chain risks and reduce dependence on Chinese manufacturing. Nearshoring, the process of relocating operations closer to home, has emerged as an explosive opportunity for American and Mexican companies to collaborate like never before.

Read More »

Changing Markets Affect on Valuations

Economics back in January 2021 Back in early 2021 there were certain signs that the economy was going to change in some way, and many predicted this change would not be positive.  Post Pandemic in January 2021 the U.S. Government continued to pour billions of dollars into the economy by printing more money. Economics 101

Read More »

Product Life Cycle Stages

See also: Product Life Cycle Company Life Cycle Why You Need a New Pricing Strategy Increasing Pricing on Products What is the Product Life Cycle? A product life cycle includes stages the product experiences throughout its lifetime – from conception of the idea to the decline and abandonment of the product. Some products experience longer

Read More »


Financial Leadership Workshop

MARCH 28TH-31ST 2022


Financial Leadership Workshop


August 7-10th, 2023

WIKI CFO® - Browse hundreds of articles
Skip to content