What defines the initial recovery phase of the business cycle?

The initial recovery phase of the business cycle is characterized by the economy beginning to recover from a slowdown or recession. During this phase, economic activities such as production and employment start to increase following a period of contraction. Indicators that signify recovery include improvements in GDP, increases in business spending, and rising consumer demand, as confidence begins to return gradually.

This phase tends to follow a period of negative growth and involves a shift from contraction to expansion, where businesses begin to invest again, and consumers start to spend, fostering growth. Other elements specific to the recovery phase—such as rising consumer confidence or decreasing unemployment—may manifest as the recovery progresses, but the defining characteristic is the economy’s movement away from the trough of recession.

In contrast, high consumer confidence, low unemployment rates, and rising inflation may not be present or fully realized until later stages of the economic recovery. Thus, the correct focus on the conditions that explicitly mark the start of recovery reinforces its definition in the context of the business cycle.