Cyclical industries are sensitive to changes in business cycles due to factors such as the economy, seasonal demands, and interest rates. They produce durable goods and include industries such as automobiles, construction, steel, and heavy equipment manufacturing. Companies within cyclical industries may continue operating during economic downturns.
A cyclical industry is a division of the business world that is considered to be particularly sensitive to changes in business cycles. Some of the reasons for business cycle changes include factors such as changes in the general economy, seasonal changes in demands for goods or services produced by the industry, or changes in prevailing interest rates. Cyclical industries are a fairly large part of the corporate landscape and include some of the most stable and enduring industries found in the economies of many nations.
In general, a cyclical industry is involved in the production of goods classified as durable. Durable goods are considered assets that will provide services over a long period of time. One of the best examples of a cyclical industry is the automobile industry. One of the main production areas of this sector is definitely susceptible to changes in the economic climate, as the purchase of a new car or truck is generally considered by most consumers to be a major purchase.
An economic downturn will tend to encourage consumers to delay purchasing a new vehicle unless replacing a currently owned vehicle is absolutely essential. For automakers, the ideal set of circumstances is for the economy to be favorable to consumer spending at the time of year when new models roll off the assembly line. If the business cycle does not indicate a high probability that consumers will be willing to buy new vehicles, a manufacturer can limit production until market indicators appear to predict a resumption of consumer demand a little later than usual.
Many other important industries are considered to be cyclical in nature. Construction is a cyclical industry that is not only impacted by general economic conditions, but also by prevailing weather conditions. The steel industry is a cyclical industry affected by trends currently projected for other cyclical industries such as construction and the automobile industry.
Heavy equipment manufacturing is another type of cyclical industry that is interrelated with other cyclical industries and could experience a downturn due to market conditions that inhibit new construction. However, it is important to note that individual companies operating within a cyclical industry are often prepared to continue operating during an economic downturn, even planning to take advantage of economic periods when consumers are more interested in spending disposable income.
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