CYCLICAL INDUSTRY

A type of an industry that is sensitive to the business cycle, such that revenues are generally higher in periods of economic prosperity and expansion, and lower in periods of economic downturn and contraction.

Companies in cyclical industries can deal with this type of volatility by implementing cuts to compensations and layoffs during bad times, and paying bonuses and hiring en masse in good times. Cyclical industries include those that produce durable goods such as raw materials and heavy equipment.

For example, the airline industry is a fairly cyclical industry; in good economic times, people have more disposable income and, therefore, they are more willing to take vacations and make use of air travel.

Conversely, during bad economic times, people are much more cautious about spending. As a result, they tend to take more conservative vacations closer to home (if they go at all) and avoid expensive air travel.