What is a 'Trough'

A trough is the stage of the economy's business cycle that marks the end of a period of declining business activity and the transition to an expansion. The business cycle is the upward and downward movement of gross domestic product and consists of recessions and expansions that end in peaks and troughs.

Trough

BREAKING DOWN 'Trough'

Economists use several metrics to track the economic cycle throughout its various phases. The most recognizable of these is gross domestic product (GDP), which is the total value of all goods and services that a country produces.

Employment levels also offer a strong indicator of where the economy stands in the business cycle. Unemployment levels of less than five percent are consistent with full employment and are indicative of economic expansion. When the unemployment rate rises from month to month, the economy has most likely entered a contractionary phase. When the unemployment rate bottoms out, a trough has likely occurred.

Incomes and wages are also great indicators for where the economy stands in the business cycle. These increase during expansion, recede during contraction, and bottom out during a trough. The major U.S. stock market indices, such as the Dow Jones Industrial Average (DJIA) and Standard & Poor's (S&P) 500 Index also track closely with the business cycle. Looking at a historical graph of the stock market, the most obvious downturns, such as during the early 1980s and late 2000s, coincide with the sharpest periods of economic contraction. The nadirs shown on the graph coincide with economic troughs or transitions from contraction back to expansion.

Examples of Economic Troughs

As of 2018, the most recent economic trough occurred in June 2009. This date marked the official end of the Great Recession, which began following the economic peak reached in December 2007. At the end of 2007, the U.S. GDP reached an all-time high of $14.99 trillion. It then fell steadily for the next year and a half, a period of strong economic contraction. In June 2009, it bottomed out at $14.36 trillion. A period of expansion ensued, with the GDP eventually surpassing its 2007 high, reaching $15.02 trillion by September 2011.

During the U.S. recession of the early 1990s, the trough occurred in March 1991. At that date, the GDP stood at $8.87, down from $8.98 trillion in July 1990, the month the recession began. The recovery to this recession, marked by the ensuing expansionary phase, was robust, with the GDP surpassing $9 trillion for the first time ever before the end of 1991.

RELATED TERMS
  1. Expansion

    Expansion is the phase of the business cycle when the economy ...
  2. Peak

    Peak refers to the pinnacle point of economic growth in a business ...
  3. Economic Recovery

    An economic recovery is a period of increasing business activity ...
  4. Industry Life Cycle Analysis

    Industry life cycle analysis is part of fundamental analysis ...
  5. Business Cycle Indicators (BCI)

    Business cycle indicators are a composite of leading, lagging ...
  6. Recession

    A recession is a significant decline in activity across the economy ...
Related Articles
  1. Investing

    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, ...
  2. Insights

    Is a Recession Coming?

    Even as a number of economic indicators look good, global conditions and inflation levels point to the imminence of another recession.
  3. Investing

    Sector rotation: Knowing the essentials

    Learn how the market signals impending economic cycles and sector performance during each stage. Find out how investors can use sector rotation for profit.
  4. Trading

    Market Cycles: The Key to Maximum Returns

    Understand the various phases of the market cycle, to avoid bubbles and make the best investments.
  5. Insights

    The Best Business To Be In During A Recovery (And Why)

    Where are the best places to be when an economy starts to recover?
  6. Insights

    4 Countries in Recession and Crisis Since 2008

    See which major world economies haven't recovered from the global recession in the early 21st century, including a long-stagnant industrial power in Asia.
  7. Investing

    Investment Portfolio Strategy in Recession

    Do you know what to do when recession hits? Learn these recession-proof strategies that help your portfolio to endure the economic downturn.
  8. Investing

    The 4 Stages of the Investor Emotion Cycle

    Investors have an emotional counterpart to each of the four stages of the market cycle.
  9. Insights

    How to Calculate the GDP of a Country

    The GDP of a country can be calculated using two different approaches. GDP or gross domestic product of a country provides a measure of the monetary value of the goods and services that country produces ...
RELATED FAQS
  1. What causes a recession?

    A recession is a significant decline in economic activity lasting more than a few months, normally visible in real GDP, income ... Read Answer >>
  2. Why does unemployment rise during a recession?

    Learn what a recession is, some attributes of an economy in a recession, and why the unemployment rate tends to rise during ... Read Answer >>
  3. When do economists use real GDP instead of GDP?

    Learn about the purposes for which economists rely on real GDP. Find out how real GDP is calculated and how it is important ... Read Answer >>
  4. How does the United States government measure economic growth?

    Find out how the Bureau of Labor Statistics and the Bureau of Economic Analysis measure economic growth in the United States ... Read Answer >>
  5. What's the best investing strategy to have during a recession?

    Figure out how to take advantage of recessions, what assets to buy and which ones to avoid. Recessions are where some great ... Read Answer >>
Hot Definitions
  1. Yield Curve

    A yield curve is a line that plots the interest rates, at a set point in time, of bonds having equal credit quality, but ...
  2. Portfolio

    A portfolio is a grouping of financial assets such as stocks, bonds and cash equivalents, also their mutual, exchange-traded ...
  3. Gross Profit

    Gross profit is the profit a company makes after deducting the costs of making and selling its products, or the costs of ...
  4. Diversification

    Diversification is the strategy of investing in a variety of securities in order to lower the risk involved with putting ...
  5. Intrinsic Value

    Intrinsic value is the perceived or calculated value of a company, including tangible and intangible factors, and may differ ...
  6. Current Assets

    Current assets is a balance sheet item that represents the value of all assets that can reasonably expected to be converted ...
Trading Center