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What is a Business Cycle?

What is a Business Cycle?

Business cycles consist of alternating periods of expansion and contraction in the level of economic activity experienced by market-oriented economies.

  • Business cycles are a type of fluctuation in aggregate economic activity in market-oriented economies.
  • They consist of simultaneous expansions in many economic activities, followed by similarly general recessions.
  • This sequence of changes is recurrent but not periodic –a business cycle can last from a year to more than a decade.
  • A business cycle cannot be divided into shorter cycles of similar character and magnitude.

Growth rate cycles – alternating periods of accelerating and decelerating economic growth – occur within business cycles. Growth rate cycle downturns can culminate in either recessions or soft landings that are followed by a reacceleration in economic growth. These cycles are especially relevant to cyclical fluctuations in securities markets.

Inflation cycles consist of alternating periods of rising and falling inflation. Inflation cycle downturns have a degree of correspondence with economic slowdowns, but sometimes begin before, rather than after, the start of a slowdown.

The Durability of the Cycle

During long periods of economic expansion, conviction inevitably grows that the business cycle is “obsolete,” because the economy has entered a “new era.”

Download and read “Business Cycle's Demise Greatly Exaggerated”.

For this reason, the robustness and objectivity of ECRI's analytical framework is essential to any informed decision-making process. The reality is that, as long as we have free-market economies and human nature is prone to bouts of greed and fear, the business cycle will endure.

ECRI History

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Three generations of cycle research.

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ECRI is perhaps the only organisation to give advance warning of each of the past three recessions; just as impressive, it has never issued a false alarm. Jan. 2005
- The Economist
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As an investment strategist, I need to navigate the many twists and turns in the emerging economic landscape with as much foresight as possible to know when to take or avoid risk. In this quest, ECRI's array of leading indices, specifically designed to predict and navigate economic turning points, have been an indispensible tool.
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Nothing in the world compares with ECRI's insights into the business cycle. Those insights form a key part of our strategic and tactical management of asset class allocations. We have never been disappointed in following what ECRI's indicators suggest is likely to occur next.
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