Cyclical Industry

Loading the player...

What is a 'Cyclical Industry'

A cyclical industry is a type of industry that is sensitive to the business cycle, such that revenues are generally higher in periods of economic prosperity and expansion, and lower in periods of economic downturn and contraction.

Companies in cyclical industries can deal with this type of volatility by implementing cuts to compensations and layoffs during bad times, and paying bonuses and hiring en masse in good times. Cyclical industries include those that produce durable goods such as raw materials and heavy equipment.

BREAKING DOWN 'Cyclical Industry'

For example, the airline industry is a fairly cyclical industry; in good economic times, people have more disposable income and, therefore, they are more willing to take vacations and make use of air travel.

Conversely, during bad economic times, people are much more cautious about spending. As a result, they tend to take more conservative vacations closer to home (if they go at all) and avoid expensive air travel.

RELATED TERMS
  1. Cyclical Stock

    An equity security whose price is affected by ups and downs in ...
  2. Cyclical Unemployment

    A factor of overall unemployment that relates to the cyclical ...
  3. Expansion

    The phase of the business cycle when the economy moves from a ...
  4. Detrend

    In forecasting models, the process of removing the effects of ...
  5. Growth Industry

    A sector of the economy experiencing a higher-than-average growth ...
  6. Defensive Company

    A corporation whose sales and earnings remain relatively stable ...
Related Articles
  1. Investing Basics

    What is a Cyclical Stock?

    A cyclical stock is an equity security whose price is affected by ups and downs in the overall economy.
  2. Sectors

    3 Cyclical Industries To Exploit in 2016

    Learn about the three industries at the down end of their business cycles, and discover how these industries may improve in years to come.
  3. Stock Analysis

    Bottom Of Cycle Stocks Require Patience

    There are no guarantees in any investment, but its seems logical that the best way to profit from a cyclical business is to pick it during the down cycle.
  4. Stock Analysis

    The Case for Rotating into (Select) Cyclical Sectors

    As it turned out, the most recent Great (Sector) Rotation was short lived and perhaps not so great after all.But although defensive sectors are back to outperforming cyclical sectors amid June ...
  5. Economics

    Business Cycle

    The business cycle refers to the fluctuations in economic activity that an economy experiences over a period of time. It consists of expansions, or periods of economic growth, and contractions, ...
  6. Stock Analysis

    Consumer Cyclical Stocks, Including Honda Motor Co., Ltd, Making Big Moves on November 21, 2012

    So far today, the Nasdaq is unchanged, the S&P 500 has moved up 0.1% and the Dow has risen 0.2%. The consumer cyclical sector is a category of stocks that relies heavily on the business cycle ...
  7. Economics

    Make Money With The Consumer Cyclical And Staple Indicator

    Knowing the difference between what consumers need and what they want can help you target your stock picks to follow consumer buying trends.
  8. Economics

    Industries That Thrive On Recession

    Find out where to turn when looking to invest in a tumultuous market.
  9. Professionals

    Know Key Financial Data Before Betting On Airlines

    The airline industry is highly cyclical. Investors need to understand where the industry is in the cycle in order to assign appropriate valuations.
  10. Investing Basics

    The Alphabet Soup Of Stocks

    Are the countless stock categories leaving you puzzled? Here we help you sort through the confusion.
RELATED FAQS
  1. How does an economic downturn affect a cyclical stock?

    Discover the effects of an economic downturn on cyclical stocks. These stocks are highly leveraged to the business cycle ... Read Answer >>
  2. What are the benefits of investing in a cyclical stock?

    Understand the benefits of investing in a cyclical stock. Learn how an investor can use those benefits to potentially reduce ... Read Answer >>
  3. How can I use interest rates to indicate the right time to buy a cyclical stock?

    Determine the best way to use interest rates to figure out the best time to buy a cyclical stock. Cyclical stocks are tied ... Read Answer >>
  4. What is the difference between cyclical and non-cyclical stocks?

    Understand the difference between cyclical stocks and non-cyclical stocks. Learn about the underlying demand factors of each ... Read Answer >>
  5. Should I buy and hold a cyclical stock for long-term gains?

    Discover whether cyclical stocks are a good option for long-term investors. Cyclical stocks tend to be highly leveraged to ... Read Answer >>
  6. Is cyclical unemployment always due to recessions?

    Learn about the mechanisms that cause cyclical unemployment and find out about the role recessions and downturns play in ... Read Answer >>
Hot Definitions
  1. MACD Technical Indicator

    Moving Average Convergence Divergence (or MACD) is a trend-following momentum indicator that shows the relationship between ...
  2. Over-The-Counter - OTC

    Over-The-Counter (or OTC) is a security traded in some context other than on a formal exchange such as the NYSE, TSX, AMEX, ...
  3. Quarter - Q1, Q2, Q3, Q4

    A three-month period on a financial calendar that acts as a basis for the reporting of earnings and the paying of dividends.
  4. Weighted Average Cost Of Capital - WACC

    Weighted average cost of capital (WACC) is a calculation of a firm's cost of capital in which each category of capital is ...
  5. Basis Point (BPS)

    A unit that is equal to 1/100th of 1%, and is used to denote the change in a financial instrument. The basis point is commonly ...
  6. Sharing Economy

    An economic model in which individuals are able to borrow or rent assets owned by someone else.
Trading Center