The business cycle defined as downward and upward fluctuations in economic activity and gross domestic product over a period of time. These fluctuations occur in countries where trade is their main work. The business cycle help in analyzing the economy, development and making better financial decisions. In addition, the business cycle goes through five stages, including expansion, peak, recession, trough, and recovery.
In the expansion stage, the economy is growing until it reaches a peak. There will be an increase in demand and supply of goods and services, employment, industrial production, personal incomes, investment opportunities and good financials conditions to repay debts. Moreover, the peak is the highest point reached by the business cycle, which achieves its maximum limit of growth rate. Furthermore, when there are rough falls in the demand for goods and services, there will be a recession. Which leads to a surplus in the supply of goods and services, and decreasing employment, industrial production, personal incomes, investment opportunities and bad financials conditions to repay debts. In addition, the trough stage is the lowest point reached by the business cycle, resulting in a depression. In the last stage, the beginning of positivism that happened in the recovery stage. In this process, the rate of consumption increase, causing improvement in the economy and enters to enter the stage of expansion.
There are some industries will be more or less sensitivity to the business cycle fluctuations. The industries that make gain in expansionary periods, would suffer losses during the recession and vice versa. In addition, the industries that recovering fast will be affected by business cycle fluctuations.
In the expansion stage, the Information technology industry and industrials will achieve their best performance. As a result, of improvement in the economy and increasing in demand and supply of goods and services, employment, industrial and personal incomes. Whereas utilities and materials industries struggling underperformance. An example for airline industry, during the expansion stage the personal incomes increase, and a lot of people would like to have vacations using the air travel.
During the recession stage, the less economically sensitive industries are; telecommunication services, utilities, health care, and consumer staples. Which means these industries’ profits are likely to be more stable, due to the importance of these industries in the lives of consumers. On the other hand, industrials, information technology, materials, real estate, and financials will have underperformance resulting from decreasing in employment rate, and decreasing in personal incomes.
Finally, in the recovery stage, there are some industries negatively affected by business cycle fluctuations such as; retail industry especially the discount stores. An example for discount stores, TJ Maxx and Walmart, tend to have economic difficulties in the recovery stage when there is an improvement in the personal income and employment rate rise. On the other hand, there are some industries had a median performance such as; information technology industry, real estate industry, industrials, financials, and shipping industry. During the recovery stage, shipping industry tends to improve leading to increasing the freight charges and the number of new orders.