Economists have long been interested in identifying underlying weaknesses in the economy and predicting recessions. The earlier they can assess weaknesses in the economy, the more effective the fiscal and monetary policies they can recommend. These policies, like lower interest rates, can lessen or even avert a recession. A common way to assess these weaknesses is by considering the overall unemployment rate. When it rises — and especially when inflation is also low — that may indicate a coming recession. However, not all sectors grow and shrink in tandem with the business cycle, so we can deepen our understanding of the economy by categorizing each sector as either procyclical or acyclical, and by then showing how procyclical and acyclical sectors change over the business cycle.
This article appeared in the Second Quarter 2025 issue of Economic Insights. Download and read the full issue.
View the Full Article