When a recession or an economic downturn occurs, markets become volatile, leading investors to sell stocks. While some industries are very susceptible to economic cycles, other industries perform well regardless of what’s happening with the economy.
Common Factors in Recession-Proof Industries
When deciding whether to hunt for a job, start a business, or invest in a recession-proof industry, it’s crucial to consider the common features that can make certain industries resistant to economic downturns. This can assist you to cope amid economic downturns. Here are some examples of recession-proof industries:
- Grocery stores, supermarkets, and wholesalers are examples of industries that provide vital items.
- Auto repair shops and HVAC companies are examples of industries that provide maintenance and repair services.
- Electricity, water, sewage, and rubbish industries are examples of vital public works businesses.
- Industries providing mandatory services, such as pipeline inspections or house inspections
Why Do Some Industries Fare Better Than Others During Recessions?
Companies that manufacture fundamental necessities such as consumer staples and food will always be in demand, even during an economic slump, because people need to prepare meals, wash, and clean, among other things. Discount stores generally fare better during recessions since their core products are less costly. Similarly, healthcare is in high demand.
How Long Do Recessions Typically Last?
Recessions normally last for 8 to 18 months, according to economic data.
What Are The Signs Of An Official Recession?
Government agencies typically consider the economy to be in a recession if it has seen negative GDP growth for two consecutive quarters, as well as changes in domestic production, real income, and employment.
Not All Recessions Are the Same
No two recessions are the same. Each one can be triggered by a variety of circumstances and varies in character. This means that while one industry may thrive during one period, it may struggle greatly during another.
The 2020 recession was particularly noteworthy. The propagation of a lethal virus and an imposed lockdown are not common occurrences. Indeed, as demonstrated throughout this essay, many of the companies that fared well in the first quarter of 2020 did so because they stood to benefit in some manner from the virus and shutdown, rather than because they are better prepared to endure a recession.
The difficulties confronting the economy in 2022 are distinct. In many ways, we’re again in uncharted ground. COVID-19, the war in Ukraine, the energy shock, and years of rock-bottom borrowing rates all contributed to the current position. These are hardly typical happenings, to say the least. The current issue is high inflation and growing borrowing prices, and in this economic environment, other companies and industries may perform better.
In general, the companies that serve the populace with necessities that we cannot live without fare better during recessions. Utilities, health care, consumer basics, and, according to some analysts, even technology are among them.
However, as with recessions, not all companies in the same industry are the same. End markets, cyclicality, and balance sheet health can all vary dramatically. Other considerations include public policy choices to address recessions, which can have a significant impact on which businesses and industries do better or worse.
Check out the infographic below by All Finance Tax which takes a further look into ‘Industries That Flourish & Fade During Economic Downturn.’
