By Stephen L. Thomas | November 2, 2023 | In
Industries that follow business cycles or trends are known as cyclical industries. An important thing to know about cyclical industries is that their profitability is closely tied to market cycles. This means companies within a cyclical industry can be relatively profitable during peaks in the cycle and may experience lows during troughs. Cyclical industries tend to sell non-essential items that may decline when economies aren’t performing well. How Cyclical Industries Work To understand cyclical industries, one must understand how business cycles work. It has four stages, which include expansion, peak, contraction and trough. Business Cycles Here is an explanation for each stage of an average business cycle. Expansion During the expansion phase, the economy grows. Some characteristics of economic growth include higher productivity, lower unemployment and higher consumer spending. This type of economic circumstance can also lead to more investing. Peak Economic growth comes to a standstill once a business cycle reaches its peak. This is because there’s only so long an economy can continue supporting expansion. As a result, right after a peak, the next phase is economic decline. Contraction When an industry contracts,