What Is A Trough In Economics

Troughs and Ridges Definition

Trough and ridges are commonly used weather terms, but what do they mean? Both features are important to examine when you are looking at a sea-level pressure map and trying to figure out the weather of a region. Troughs are elongated regions where there is low pressure, and they typically occur before a cold front. A trough is often an indicator of coming clouds, showers, or a shift in the direction of the wind.

Ridges, in weather terminology, are elongated regions of relatively high pressure. These result in dry conditions around them. They can also bring onshore winds resulting in coastal showers.

Troughs are known for bringing cool and cloudy weather with them, while ridges usually bring warmer and drier weather. This phenomenon is witnessed because the air in a high-pressure region or ridge compresses and gets warmer as it descends. When this happens, cloud formation is inhibited, so you are more likely to see sunny skies in high-pressure regions. The opposite is true when it comes to low-pressure areas.

Understanding ridges and troughs are important for weather forecasting. These high or low-pressure atmospheric regions develop further to form cyclones and anticyclones. The latter are spinning storms that occur around high-pressure systems. Cyclones, on the other hand, are closed cells with a low-pressure center.

A ridge is associated with the high pressure found in the middle of two low-pressure regions, and it forms the center of an anti-cyclone. You can expect the opposite to be true in the case of a trough. Cyclones are powerful storms, so the better these can be forecasted, the better.

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What Is Meant by Monsoon Trough?

A monsoon trough is where the wind patterns of the northern and southern hemispheres meet. On a weather map, it is depicted by a line where there is minimum sea-level pressure. The monsoon trough is located in the Western Pacific and forms a part of the Intertropical Convergence Zone.

The seasonal change in the direction of the prevailing winds in a region is known as a monsoon. Monsoons blow from the cold to the warmer regions and are responsible for weather changes in the wet and dry seasons in the tropical regions around the Indian Ocean. Monsoon troughs are important to understand because they affect the activities of monsoons.

Special Considerations

Troughs are recognizable in hindsight, but harder to spot in real-time. As the economic indicators contract, the economy is in a contraction phase. This phase can last for a short or long period of time. It is only once the economic activity begins to increase again, as shown on economic indicators, that expansion is likely underway and the trough (or bottom) has been put in.

While troughs vary in severity—with some troughs only being minor setbacks in economic growth, and others being sustained periods of hardship—they are typically marked with declining business sales and earnings, layoffs, low credit availability, higher unemployment, and business closures (all compared to the other business cycle phases). Troughs are important as they mark a positive turning point for the economy.

Technical traders also sometimes refer to swing lows as troughs, and swing highs as peaks. Asset prices move up and down, forming peaks and troughs.

Image by Julie Bang © Investopedia 2019

How Does a Trough in the Business Cycle Work?

A trough in the business cycle marks the low point in the economic cycle. It follows a period of decline after the economy hits peak productivity. Employment and output will fall for a time, and the government often steps in to stimulate a recovery. As the economy works through the trough, growth will resume and the cycle will begin again.

The trough is the bottom of the cycle. At that point, the recovery begins and the economy moves toward a new peak. That may happen over a few months or a few years. 

The Great Recession began its decline from a peak in December 2007. The trough was reached in June of 2009, and the next peak didn’t occur until February 2020. In other words, the recession lasted from December 2007 to June 2009, and the recovery continued from June 2009 all the way until February 2020.

Frequently Asked Questions

When do troughs in the business cycle occur?

A trough in the business cycle occurs when a recession ends and economic recovery or expansion begins. A recession's depth is determined by the magnitude of the peak-to-trough decline in the broad measures of output, employment, income, and sales. Its diffusion is measured by the extent of its spread across economic activities, industries, and geographical regions. Its duration is determined by the time interval between the peak and the trough.

What are the stages of the economic cycle?

The economic cycle is another term for the business cycle. The four stages are expansion, peak, contraction, and trough.

What are the levels of severity of an economic trough?

A recession is a trough defined as negative GDP growth occurring over two consecutive quarters and lasting for several months or longer. A depression is commonly defined as an extreme recessionthat lasts three or more years or which leads to a decline in real gross domestic product (GDP) of at least 10%. in a given year. Depressions are relatively less frequent than milder recessions and tend to be accompanied by high unemployment and low inflation.

What is a peak vs. a trough in economics?

A peak is the opposite of a trough: a high point at which expansion shifts to contraction.

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