Current interest rate increases, high inflation, supply chain disruptions and volatility in global markets make the risk of a recession more likely.
td values has predicted the probabilities that the us the economy will fall into recession next year by more than 50%, while the head of the international monetary fund (imf) has warned that the outlook for the global economy has “darkened significantly” in recent months and the world faces a heightened risk . of recession in the next 12 months.
Reading: Recession proof sectors
what does an official recession indicate?
Government agencies classify an official recession as two consecutive quarters of negative GDP growth that is also accompanied by changes in domestic output, real income, and employment. Recessions cause a significant decline in economic activity that spreads across all sectors of the economy and typically lasts for several months.
but what exactly does this mean? A recession can have a number of effects, including a downturn in the economy, job loss for individuals, decreased sales for businesses, and a decline in the country’s overall economic output.
A recession will affect all sectors of the economy, and while no industry is immune to the effects of a recession, some industries tend to be more resilient to recession than others.
what are recession-proof industries?
Some industries are less likely to be affected by a recession than others. These industries have the ability to withstand the economic pressures faced by other industries. they are known as recession-proof industries.
During economic downturns, recession-proof industries can perform as expected, if not better. These industries are often not affected by fluctuating demand as they provide a need or service that is in demand or popular during recessions.
There is no industry that is 100% immune to a recession, but certain industries tend to be resilient regardless of the effects of the recession on employment, customer confidence and economic activity. In times of economic downturn, these industries will continue to invest in expanding their operations.
In case you’re wondering which recession-proof industries might be worth attracting investment, here are five to consider.
Consumer staples are a set of essential products used by consumers. These products range from food and beverages, household items and hygiene products, as well as alcohol and tobacco. these are products that consumers are unwilling or unable to give up, regardless of their financial situation.
Consumer staples are a recession-proof industry as they are not affected by fluctuations in demand. These products are in demand throughout the year and are not affected by the state of the economy. those companies that operate in this sector will experience growth and accumulate capital that will allow them to expand further.
The consumer goods industry generates consistent earnings, has steady growth, solid dividends and low volatility. While these attributes may not be the most attractive during periods of economic growth, during a recession stability and consistency are the key to success. Consumer staples are recession-proof, as the industry is able to thrive during periods of slow economic growth due to consumer need and demand for its products.
largest consumer staples companies: procter & bet, hershey, coca-cola, pepsico, unilever, mondelez international, colgate-palmolive, keurig dr pepper, kraft heinz, sysco
supermarkets and discount stores
During recessions, unemployment rises and household incomes decline, forcing households to cut additional spending and adjust their budgets. As a result, households will focus on lowering the costs of living, which is most easily achieved by reducing restaurant meals and swapping commonly purchased goods for lower-cost alternatives.
Supermarket spending tends to stay strong during recessions, while restaurant spending declines sharply. Since there is a focus on getting the most value for cost, spending on bulk products, sale items and generic brands increases. Discount stores also see an increase in consumer spending during recessions as they offer lower-cost alternatives to common purchases.
In terms of recession-proof industries, grocery and discount stores are almost guaranteed to thrive.
Larger supermarket and discount companies: Walmart, Amazon, Kroger, Costco, Walgreens, Target, Dollar General, Family Dollar, Dollar Tree
sanitary and pharmaceutical
Even in the worst of economic downturns, the health care and pharmaceutical industry will remain recession-proof. the demand for medical care is constant as it is a necessity for one’s ability to live. As such, even with declines in overall income, people will continue to spend on quality health care, making their demand inelastic.
Because of their vital role among consumers, the pharmaceutical and healthcare industries are unlikely to be affected by a recession like other industries. even in the event of another recession, unemployment among healthcare workers and workers is not expected to exceed 5%, which is half the overall unemployment rate of 10% we saw after the 2008 financial crisis .
While the health care and pharmaceutical industry as a whole tends to be relatively recession-proof, not all companies are equal investments. When looking at where in the healthcare and pharmaceutical industry to focus investments, avoid companies that have more debt and cash flow problems, as these companies are likely to be hit harder by a recession.
Largest healthcare and pharmaceutical companies: CVS Health Corp., UnitedHealth Group Inc., McKesson Corp. amerisourcebergen corp., cigna corp. (CI), Cardinal Health Inc. (cah), johnson & johnson, roche, eli lilly, pfizer, novo nordisk, abbvie, merck
When a recession hits, it’s more common for people to turn to “guilty pleasure” products. With higher-cost purchases like vehicles, vacations, and new gadgets out of reach, people seek solace in vice products. during the great depression, sales of candy and cigarettes skyrocketed. The tobacco industry also continues to grow each year, whether it is a recession year or not.
The fact that the vice industries are a recession-proof industry can be explained by their addictive tendencies. addiction is inelastic, and the goods that sustain it thus also become inelastic. These products have also become a way to escape the tough times that many face during recessions.
vice industries often replace larger expenses during a recession, allowing consumers to have a lower-cost replacement for previously high-cost expenses. Regardless of what happens within the economy, people still want to invest in pleasure, and vice industries offer consumers what they want during a recession, making them prosper in periods of economic downturn, and thus a strong industry. recession-proof to guide investment.
larger companies: philip morris international, anheuser-busch inbev sa/nv, diageo, british american tobacco, altria group, constellation brand
While it may seem strange that the luxury goods industry is resilient to a recession considering the high prices that come with products, that is exactly why luxury goods are not affected in the same way. than other goods.
Luxury items have based their high prices on promises of quality, prestige and lasting value. these brands often have strong inventory controls, with a very limited supply of products per year. Over the past decade, brands have become less dependent on third-party retailers and wholesalers, instead turning to e-commerce for control over stock and a more direct relationship with their customer base.
Luxury heritage brands, those that have a reputation worthy of generations, are considered investments rather than assets. traditional brands have built their reputations around being heirlooms passed down from generation to generation. Your assets are seen as investments that have value, since there is a limited supply of products, when demand increases, so does the return on assets. This makes the luxury goods industry recession-proof, as it does not depend on high-volume sales from a broad customer base, but rather on the promise of lasting value that its limited supply of products holds for your loyal consumer base.
larger companies: lvmh moet hennessy-louis vuitton se, kering sa, the estee lauder companies inc, compagnie financier richemont sa, l’oréal luxe, chanel limited, essilorluxottica sa, pvh corp., hermès international sca
Recessions are hard on everyone and ripple through the economy. While no industry is 100% recession resistant, the above are those that are expected to be resilient in the face of a predicted economic downturn.
These industries are typically those that are unaffected by fluctuations in demand and those that offer services that become necessary during recessions. While this list is not exhaustive, consumer staples, grocery and discount stores, luxury goods, health care and pharmaceuticals, and vice industries are all recession-proof industries that can provide investment opportunities for savvy economic developers to explore during economic downturns.
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