What Industries Do Best in a Recession?

What Industries Do Best in a Recession

Sink or swim: our round-up of businesses that navigate recessions well.

The media has been sounding the alarm on an impending recession for months now, particularly in the U.S. and Europe. Reports assert that the Eurozone has entered a recession, characterized by rising living costs and interest rates. Recessionary periods can be challenging not just for consumers but also for many industries. Still, some sectors seem to weather the storm better than others. As the financial landscape shifts, some industries (and careers) emerge as somewhat recession-proof, defying the odds and showing remarkable resilience in economic adversity. 

The consensus is that companies with inelastic demand, signified by a price-resistant demand, survive a recession. In this article, we’ll explore those industries that tend to be resilient during recessions and uncover the reasons behind their success.

Healthcare and pharmaceuticals

When times are tough, people still need medical attention. The healthcare and pharmaceutical industries are known for their stability and growth, even during economic downturns. A study found that the more severe the economic downturn, the greater the demand for healthcare professionals. The demand for healthcare services and medications remains constant, as people prioritize their well-being regardless of the state of the economy. 

Ironically still, even though demand for healthcare remains high, government spending on healthcare might decline during a recession due to budget cuts and having to re-prioritize where the money goes. Additionally, though health care is non-negotiable for many, some will still try  to save a few bucks and avoid going to the doctor unless it is absolutely necessary. However, this hesitation does not render the healthcare sector irrelevant. Essential services like surgeries, emergency treatments and so on cannot be substituted with home remedies, ensuring sustained demand in the industry.

Essential consumer goods

A 2022 BCG report on consumer spending during a recession revealed that people could spend up to 30 percent extra on essential goods. These essentials—like gas, fresh food, personal care and more—were designated as the “Winner Spending Categories”. Contrarily, people would cut down spending on nonessential goods—the “Loser Spending Categories”—including travel, liquor, entertainment and the like during such periods. 

No surprises here; during a recession, consumers become more cautious with their expenditures and tend to prioritize necessities. As a result, industries producing essential consumer goods like food, beverages, personal care products and household items generally fare well. While luxury products may suffer, companies catering to basic human needs will likely see steady demand.

Discount retailers

Notice your behavior when prices shoot up. If you find yourself reaching out for products featuring discounts, you’re not alone. As per the BCG survey, 70 percent of respondents agreed that they actively look for deals and discounts when shopping during a recession. As consumers tighten their belts, they seek ways to save money without compromising quality. In such situations, discount retailers thrive. Stores offering affordable prices and discounts tend to attract more customers during a recession. These retailers can benefit from a surge in footfall as people search for bargains.

Education and training

When jobs become scarce, individuals seek ways to enhance their skills and make themselves more employable. As a result, the education and training industry tends to witness increased demand during recessions. Colleges, universities, vocational schools and online learning platforms experience a surge in enrollments as people invest in their education to improve their career prospects. After all, recessions also compel companies to undertake layoffs. 

What’s more, a study by the London School of Economics found that individuals who enroll in universities when during economic downturns generally earn better wages upon graduation. This suggests that investment in education, particularly during downturns, can yield significant long-term dividends.

Utilities

Utilities are considered recession-resistant due to their essential nature. Regardless of economic conditions, people still need electricity, water and heating. This fundamental need ensures a steady demand for these services.

Utility companies often operate under regulated frameworks, which offers them a protective buffer during turbulent economic times. This regulated environment ensures that while other industries might face significant disruptions, utility companies can often continue with business as usual.

Moreover, reports emphasize the stability of utility stocks, considering them among the safest investments during recessionary times. 

Debt collection agencies

Unfortunately, during a recession, the number of individuals and businesses struggling with debt increases. Debt collection agencies become more relevant as creditors seek assistance in recouping outstanding payments. These agencies help businesses manage their cash flow, which becomes critical in economic downturns. 

Entertainment and media

During difficult times, people seek distractions and entertainment to cope with stress—to gain a sense of escapism. The entertainment and media industry can benefit from this trend. While traditional media, like newspapers, might face challenges, digital entertainment platforms, streaming services like Netflix and online gaming companies are likely to see increased engagement. Historical data further underscores this trend: of the last eight recessions, box office sales rose sixfold, with admissions surging five times.

What cushions their success

Several factors can contribute to the resilience of these industries during a recession. Their essential nature, rooted in basic necessities and alignment with government policies, makes them more recession-resistant. Additionally, an industry’s capacity for adaptability and innovation plays a crucial role. Those that can quickly pivot to meet changing demands and leverage technology to their advantage are more likely to have the upper hand.

While recessions can be daunting and unpredictable, certain industries consistently demonstrate their ability to survive and thrive during economic downturns. The healthcare and pharmaceutical sectors remain indispensable, while essential consumer goods and discount retailers cater to people’s basic needs at affordable prices.

Innovation-driven industries, like healthcare technology and renewable energy, offer sustainable solutions congruent with the evolving economic landscape. Understanding the dynamics fueling these sectors’ success during a recession can offer valuable insights for businesses seeking to weather the storm.

On the other hand, some industries—like retail, real estate, leisure and more—face an uncertain future in recessionary climates. As people cut back on discretionary spending, these items find themselves at the bottom of their priority lists. So, if you aim to profit during a particularly challenging recessionary period, take note of the industries that can (and definitely cannot) turn you into a business giant.

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