Business Cycle
The recurring pattern of expansion, peak, contraction, and trough in economic activity.
What is Business Cycle?
The business cycle describes the recurring fluctuations in economic activity over time, characterized by alternating periods of expansion and contraction. The four phases are: expansion (rising GDP, employment, and business activity), peak (the highest point before a downturn), contraction or recession (falling GDP, rising unemployment), and trough (the lowest point before recovery begins). In the US, the National Bureau of Economic Research (NBER) officially dates business cycle peaks and troughs. Cycles vary widely in duration and severity: the longest US expansion on record ran from 2009 to 2020 (128 months). Business cycle analysis informs investment strategy, monetary policy, and corporate planning.
Example
The COVID-19 recession (February–April 2020) was the shortest US recession on record — just two months — but also the sharpest: GDP fell 31.2% annualized in Q2 2020. The subsequent expansion (from May 2020) was powerful, with GDP recovering above pre-pandemic levels within a year, aided by massive fiscal and monetary stimulus.
Source: National Bureau of Economic Research — Business Cycle Dating