Many cyclical industries manufacture relatively mature, commodity-like products, such as steel or chemicals. Purchases of cyclical consumer products, which tend to be durable, are often postponed if times are tough. For example, the earnings of automobile manufacturers move sharply during different stages of the economic cycle. Then profitability dipped again in the late 1980s and early 1990s, reflecting a weaker economic environment. Another industry that is especially cyclical is homebuilding and related areas.
Some industries are more sensitive to economic cycles than others.
When policy prices to consumers are on the rise, insurers are spurred to write more policies and generate new business. Eventually a wave of price-cutting follows, and earnings suffer. Another example includes the area of electronics, where frequent introductions of new-generation chips have caused big swings in profitability and highly cyclical stock prices. Investors willing to buy early, when the outlook is still bleak, can enjoy a nice ride up on a cyclical stock. The opposite of cyclicals are defensive industries, those whose products and services are staples of everyday consumer life.