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What is a Cyclical Industry?
Malcolm Tatum
Malcolm Tatum
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.
Malcolm Tatum
After many years in the teleconferencing industry, Michael decided to embrace his passion for trivia, research, and writing by becoming a full-time freelance writer. Since then, he has contributed articles to a variety of print and online publications, including WiseGEEK, and his work has also appeared in poetry collections, devotional anthologies, and several newspapers. Malcolm’s other interests include collecting vinyl records, minor league baseball, and cycling.
Learn more...
Malcolm Tatum
After many years in the teleconferencing industry, Michael decided to embrace his passion for trivia, research, and writing by becoming a full-time freelance writer. Since then, he has contributed articles to a variety of print and online publications, including WiseGEEK, and his work has also appeared in poetry collections, devotional anthologies, and several newspapers. Malcolm’s other interests include collecting vinyl records, minor league baseball, and cycling.
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![The auto industry is considered cyclical because of its shifting demand trends.]()
By: Nataliya HoraThe auto industry is considered cyclical because of its shifting demand trends. -
![Construction is considered a cyclical industry.]()
By: mavilConstruction is considered a cyclical industry.
Discussion Comments
It's been easy to notice in the early years of the economic downturn that, the travel industry has been cyclical. There for a while and even now, there's a high vacancy rate in Las Vegas and many other formerly popular vacation destinations. This affects the food industry and service personnel, like maids and servers.
And, of course, the airline industry shows a drop in customers. Then hotels, resorts, and airlines have to offer special deals to try to fill up their seats and rooms. Eventually, some people start spending some of their money again on travel, even if it puts them further in debt.
There are cyclical industries that are seasonal. One example is all the products that are made for the Christmas season. This cycle is predictable. Toys, Christmas trees, decorations, jewelry and many other company sales obviously are at the high mark around Christmas.
In bad economic times, some Christmas sales seasons are painful. Companies have to cut prices to sell off their merchandise. But, overall, seasonal industries plan on a good part of their revenue coming at the seasonal time.
Most of these companies survive and thrive.
I would hate to be a maker of flat panel TVs in an economic downturn. These are examples of cyclical companies that do well when the economy is booming, but do poorly in a downturn.
In a recession people are just focused on putting food on the table and paying their mortgages and car payments, not discretionary spending like recreation and entertainment.
I think it is good advice to live frugally no matter what economic climate you’re in.
@MrMoody - Yes, that can be bad. But you just have to know how to turn lemons into lemonade. I got a lot of temporary work during a cyclical downturn once. But I used those temp assignments to gain additional technical skills (I work in I.T.).
When the economy came out of the slump, I had a sharper resume and was able to get permanent work. You just have to know what season you’re in and learn to make the best of it.
The employment industry tends to be cyclical too, unfortunately. Take temporary agencies as an example. When the economy is in a downturn but employers still need help, temporary agencies get an uptick in business.
They get requests for temporary workers who are not promised any healthcare benefits or other perks, but can put in the hours needed to finish an assignment the employer needs help with. When the assignment is done, the employer writes the check, and they incur no additional financial burden. The temp worker is left looking for more work again.
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