The Business Cycle is the macroeconomic way to explain the fluctuations in the economy over time. There is recurrent ups and downs in the long run of the economy. This pattern is very similar to the Bull and bear market trends I talk about. The main difference is the lingo that economist and financial reporters will use. There are 4 important economic terms that go along with the business cycle that you will hear the finical media use when they are explaining economic conditions.
This means that the economy is in a slow down period, or can be entering a recessionary period. The economic definition of a recession is any period of time in a nation where the GDP is negative for two or more quarters. A downturn is when the chart goes from a peak and turns downward.
This is when the chart goes from a downturn up to the peak. This is during times of economic expansion. This represents a growing GDP and a reduction in unemployment.
3. Seasonal trends
This is a specific economic pattern that correlates with the treads of the seasons. There are seasonal economic trends that are annual. The one most people think about is Christmas shopping where big retailers try to increase sales in the fourth quarter.
4. Secular trends
This is the overall trend line of the economy over a long run. Some economist say this is at least 25 years of data to make a secular trend.
Tops and Bottoms
One important thing to remember is we don’t know when a peak or trough is happening in real time. If someone could call the peak and trough they would be the wealthiest person in the world.
Peaks are a top in the secular trend as outlined on the chart.
Trough’s are bottoms in the secular trend as outlined on the chart.