A business cycle is defined by fluctuations in economic activity that an economy experiences over a period of time. An average cycle lasts roughly 70 months with an average growth period of approximately 60 months and an average period of decline of about 11 months.
A business cycle can also be defined as a period of recession and expansion. Phases of business cycles are peak, contraction, trough and recovery. During periods of expansion and growth in a business cycle, the economy is experiencing growth that doesn't account for inflation. Indicators of growth include increased industrial manufacturing, job growth, increased individual income and growth in sales. The opposite occurs during periods of recession.
The overall growth of an economy is measured from the lowest point of the previous business cycle while decline is measured from the highest point of the last cycle. Understanding of the business cycle can be used to strategically time an investment profile. Cyclical stocks tend to perform better during periods of early expansion while defensive groups usually perform better in times of recession.
A private non-partisan, non-profit organization known as the National Bureau of Economic Research is the entity that determines when a business cycle begins and ends.