A cyclical industry is a division of the business world that is considered to be particularly sensitive to shifting business cycles. Some of the reasons for shifts in the business cycle include such factors as changes in the general economy, seasonal changes in demands for the goods or services produced by the industry, or changes in the prevailing interest rates. Cyclical industries are a rather large part of the corporate landscape, and include some of the most stable and enduring industries found within the economies of many nations.
In general, a cyclical industry is involved in the production of goods that are classified as durable. Durable goods are considered to be assets that will provide service for an extended period of time. One of the best examples of a cyclical industry is the auto industry. One of the main areas of production for this industry is definitely susceptible to changes in the economic climate, since purchasing a new car or truck is generally considered by most consumers to be a major purchase.
A downturn in the economy will tend to encourage consumers to delay the purchase of a new vehicle, unless replacement of a currently owned vehicle is absolutely essential. For auto manufacturers, the ideal set of circumstances is for the economy to be conducive to consumer spending around the time of year that the new models roll off the assembly line. If the business cycle does not indicate a high probability that consumers will be in the mood to purchase new vehicles, a manufacturer may limit production until market indicators appear to forecast an upturn in consumer demand a little later than usual.
Many other important industries are considered to be cyclical in nature. Construction is a cyclical industry that is not only impacted by the general condition of the economy, but also by existing weather conditions. The steel industry is a cyclical industry that is affected by the trends currently projected for other cyclical industries, such as construction and the auto industry.
Heavy equipment manufactures are another type of cyclical industry that is interrelated to other cyclical industries and may experience a downturn due to market conditions that inhibit new construction. However, it is important to note that individual companies that operate within a cyclical industry often are prepared to continue to function during an economic downturn, even while planning to take advantage of economic periods where consumers are more interested in spending disposable income.