Contraction

The downward slope of the business cycle is called economic contraction. A contraction is a period when economic output declines. During this phase, the economy is producing fewer goods and services than it did before. When fewer goods and services are produced, fewer resources are used by firms including labor.

A contraction generally occurs after the business cycle peaks, but before it becomes a trough.

One recent example of a major economic contraction was the one caused by the COVID-19 pandemic, though there have been many over the past century.