CandleFocus Glossary Editor
Trough, in economic terms, is an important stage of the business cycle and marks the bottom of economic activity before the coming of recovery and expansion. This downturn in economic activity typically involves a host of economic characteristics including higher joblessness and layoffs, lagging business sales, reduced business earnings, and tightened credits. A trough can only be identified once the recovery has begun, making determination of the exact point of the trough difficult in the current environment.
Agreeing on the actual position of the trough is a source of debate between economists, and the correlation between peaks and troughs can depend greatly upon a country’s economic situation. Still, the idea of using maturation date and real-time data to identify troughs and peaks is gaining acceptance among economists as a useful tool for market analysis.
Although the exact timing of the trough will remain a point of contention, it is generally associated with slowdowns and downward spiral in economic markets. Businesses experience decelerated sales, and unemployment sees increases as employees are laid off or businesses no longer hire. With reduced spending and resources, businesses and consumers start to feel the effects of the receding GDP, creating a sense of uncertainly and economic insecurity.
In the attempt to keep the downturns in the business cycle to a minimum, both the consumption tax and fiscal policies are adjusted to help businesses and support consumer spending. This provision of resources to the marketplace can help mitigate and weather the downtrend, ultimately leading to recovery and expansion.
However, no economy is perfect and these necessary troughs in the business cycle are an inevitable part of our modern economic system. The notion of the trough may be unpleasant, but it can be used to plan for the future, whether markets are in a trough or in an expansion phase. By understanding the trough and its effects, businesses and governments can make informed decisions that will lead to better economic outcomes in the future. To be able to observe and proactively predict troughs, it is pertinent to know the economic indicators which will provide predictive insights into where the businesses cycle peaks and troughs may occur.
Agreeing on the actual position of the trough is a source of debate between economists, and the correlation between peaks and troughs can depend greatly upon a country’s economic situation. Still, the idea of using maturation date and real-time data to identify troughs and peaks is gaining acceptance among economists as a useful tool for market analysis.
Although the exact timing of the trough will remain a point of contention, it is generally associated with slowdowns and downward spiral in economic markets. Businesses experience decelerated sales, and unemployment sees increases as employees are laid off or businesses no longer hire. With reduced spending and resources, businesses and consumers start to feel the effects of the receding GDP, creating a sense of uncertainly and economic insecurity.
In the attempt to keep the downturns in the business cycle to a minimum, both the consumption tax and fiscal policies are adjusted to help businesses and support consumer spending. This provision of resources to the marketplace can help mitigate and weather the downtrend, ultimately leading to recovery and expansion.
However, no economy is perfect and these necessary troughs in the business cycle are an inevitable part of our modern economic system. The notion of the trough may be unpleasant, but it can be used to plan for the future, whether markets are in a trough or in an expansion phase. By understanding the trough and its effects, businesses and governments can make informed decisions that will lead to better economic outcomes in the future. To be able to observe and proactively predict troughs, it is pertinent to know the economic indicators which will provide predictive insights into where the businesses cycle peaks and troughs may occur.