The business cycle is a critical and fundamental element of macroeconomics. It is the basis of many economic decisions, and the primary focus of articles or pieces in print media, radio, television, and the Internet. The business cycle is ubiquitous and will get millions of hits when searched on Google or other search engines. Even with all this interest and debate, it is still misunderstood. However, if you want to be successful in the personal and professional aspects of your life, you need to understand the business cycle.
The remaining years of the decade, after the 2016 election, could see sluggish economic growth, as we grind toward the eventual slowdown of the economy. I am predicting a 2018 recession, which will be the culmination of several years of slowing (but not negative) economic growth and the downsizing of companies, as they try to deal with higher costs and lower profits. I also expect that labor as a cost will resurface as the primary target of CEOs and CFOs, and there will be a renewed effort to maximize “non-touch” processes, automation, and artificial intelligence to cut expenses. As you can see in the graph below, we are nearing the bottom of the downward phase of the business cycle, and economic challenges are in our near future.
The Business Cycle (graphic)
I believe the Fed will also have to raise interest rates to hold inflation in check. If the current Fed chair, Janet Yellen, does not “take away the punch bowl” soon, then we will certainly be on our way to pushing the inflation pendulum to the other side, toward inflation. The effects of inflation on the business cycle are twofold: Inflation puts pressure on producers to consider price increases in their products and, if prices get too high, it can cause consumers to cut back on spending, leading to a slowdown in consumption and eventually a recession.