Unit 1 · Level 2 · The business cycle
Unit review: the cycle
Quick recap: the economy loops through expansion, peak, recession and recovery, on no fixed schedule. GDP and unemployment tell you where you've been; PMIs, orders and markets hint at where you're going. Recessions bring real pain, markets turn before the economy does, and nobody reliably calls the turns in advance.
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What you get asked
This time starting from the TOP: order the cycle phases
Same wheel, different starting point. Wherever you jump on, the sequence holds, which is exactly why 'this boom will last forever' has been wrong every single time.
Which indicator would most likely turn FIRST ahead of a downturn?
Orders are decisions about the future, so they fade early. Unemployment, profits and GDP describe the past. By the time they confirm trouble, markets have usually reacted long ago.
Unemployment is a ___ indicator that can keep rising even after the recovery has begun.
In 2009, US stocks bottomed in March while unemployment climbed until October. Lagging doesn't mean useless. It still confirms the story; it just confirms it late.
Which statement about recessions is TRUE?
Markets anticipate; official labels arrive months late. In 2008 the recession had been running nearly a year before it was formally declared, while stocks had been falling since late 2007.
The single most honest conclusion about timing the business cycle:
Even the best gauges give probabilities, not dates. Use the cycle to understand risk and stay diversified. The humble investor outlasts the confident forecaster. 🐜
The rest of this unit
Learn the economy's heartbeat: expansion, peak, recession, recovery.