Peak of the Business Cycle

D

During the peak of the business cycle, firms are already operating near full capacity, leading to very small increases or declines in capacity utilization. Inflation tends to be high, resulting in workers' demands for higher wages. Because firms now tend to be using marginal labor and production facilities, productivity increases only slowly. These factors result in substantial increases in unit labor costs, which along with the otherfactors, also help push profit margins lower.