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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 continues to be an important resource in determining our tactical allocation. For over a decade their economic cycle forecasts and detailed research topics have been a critical part of our decision making process.
- ECRI Client
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- Forbes Magazine
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
In March [2009], the month the market scraped bottom, ECRI went forth with [a] tablepounding historical observation-. The implication could not have been clearer that a market rally, when it started, would be no sucker's affair but the real McCoy.
- Grant's Interest Rate Observer
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- ECRI Client
ECRI can justify a certain smugness now that business cycles are back in fashion. The institute called the last two recessions and the current recovery months ahead of the pack.
- Harvard Business Review
           

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