What typically happens during the trough phase of the business cycle?

During the trough phase of the business cycle, the economy is at its lowest point before a recovery begins. This phase is characterized by a significant reduction in economic activity, which may include declines in GDP, increased unemployment rates, and lower consumer and business confidence. It reflects a period where many economic indicators—such as production levels, investment spending, and retail sales—are at their nadir.

At this point, businesses may be experiencing lower revenues, leading to cutbacks in production and workforce, and consumers tend to reduce spending due to uncertainty about the future. The trough phase sets the stage for recovery, as once activity has bottomed out, the economy can gradually begin to improve, eventually leading to expansion. Recognizing that economic activity declines during this phase is crucial for understanding how economies function and how policy measures may be needed to stimulate growth as conditions begin to improve.