Let’s start with economic downturns. A recession is often defined as two or more quarters of negative economic growth, which is most commonly assessed using real gross domestic product (GDP). Employment levels, real incomes, retail sales, and industrial output are among the parameters used by the National Bureau of Economic Research (NBER). Banking, trade, and industrial disasters are common during recessions, as are decreasing prices, severely restricted credit, limited investment, mounting bankruptcies, and high unemployment.
What will happen if the economy tanks?
People from various economic origins will feel the effects of a recession in various ways. There will be an increase in unemployment, a decrease in GDP, and a decline in the stock market. A recession, on the other hand, could be far more damaging to an unemployed single mother of two than it would be to a young, employed professional with no dependents.
Whatever your circumstances, there are a few things you should be aware of in order to prepare for the next economic slump.
How Can You Mitigate Potential Loss?
Recessions might be frightening, but it’s critical to maintain your composure. Mitch Goldberg, the president of an investing firm, urged not to make hurried judgments in an interview with CNBC shortly after the inverted yield curve in mid-August 2020.
“Don’t panic,” Goldberg advised, “and don’t make hasty financial and investing decisions.”
If you’re worried about a recession and think your short-term investments won’t make it through, consider moving part of your money to long-term CDs, high-yield savings accounts, or just cash. However, a well-diversified long-term investment portfolio should be able to withstand both bull and bear markets.
What Does a Recession Mean for Your Employment?
Unemployment grows during a recession. As a result, the next recession will have an impact on some segments of the workforce. It’s impossible to predict if you’ll lose your job during a recession. It’s a good idea to take a look at:
Examine your current position with a critical eye. It might not be a bad idea to clean up your CV just in case, depending on your situation. Also, it’s always a good idea to do everything you can to make yourself indispensable and broaden your skill set. When you’re functioning at your best, regardless of the economy, it’s a win-win situation for you and your company.
Even if you work in one of the industries severely afflicted by the coronavirus, finding a new employment can be difficult, especially if you’re between the ages of 16 and 24. While certain businesses may never recover to pre-pandemic levels, other employment types have seen an upsurge in demand.
What Does It Mean for Your Investments and Retirement Funds?
Learn from a major blunder made by some investors during the Great Recession: selling their equities while they were falling in value. Recessions and bear markets should already be factored into your long-term investment strategy. If you keep your investments for a long time, they will ultimately recover and become more valuable. The same can be said for your retirement savings.
During your career, you should anticipate to face a recession. There have been more than 30 recessions in the last 165 years. Statistically, you’ll most likely have more than one while building your retirement savings.
What is the impact of a recession on the typical person?
To prosper, the economy requires businesses to generate goods and services that are purchased by customers, other businesses, and governments. When manufacturing slows, demand for products and services falls, financing tightens, and the economy enters a recession. People have a poorer standard of life as a result of job insecurity and investment losses. Recessions that continue longer than a few months cause long-term challenges for ordinary people, affecting every area of their lives.
In a downturn, who benefits?
Question from the audience: Identify and explain economic variables that may be positively affected by the economic slowdown.
A recession is a time in which the economy grows at a negative rate. It’s a time of rising unemployment, lower salaries, and increased government debt. It usually results in financial costs.
- Companies that provide low-cost entertainment. Bookmakers and publicans are thought to do well during a recession because individuals want to ‘drink their sorrows away’ with little bets and becoming intoxicated. (However, research suggest that life expectancy increases during recessions, contradicting this old wives tale.) Demand for online-streaming and online entertainment is projected to increase during the 2020 Coronavirus recession.
- Companies that are suffering with bankruptcies and income loss. Pawnbrokers and companies that sell pay day loans, for example people in need of money turn to loan sharks.
- Companies that sell substandard goods. (items whose demand increases as income decreases) e.g. value goods, second-hand retailers, etc. Some businesses, such as supermarkets, will be unaffected by the recession. People will reduce their spending on luxuries, but not on food.
- Longer-term efficiency gains Some economists suggest that a recession can help the economy become more productive in the long run. A recession is a shock, and inefficient businesses may go out of business, but it also allows for the emergence of new businesses. It’s what Joseph Schumpeter dubbed “creative destruction” the idea that when some enterprises fail, new inventive businesses can emerge and develop.
- It’s worth noting that in a downturn, solid, efficient businesses can be put out of business due to cash difficulties and a temporary decline in revenue. It is not true that all businesses that close down are inefficient. Furthermore, the loss of enterprises entails the loss of experience and knowledge.
- Falling asset values can make purchasing a home more affordable. For first-time purchasers, this is a good option. It has the potential to aid in the reduction of wealth disparities.
- It is possible that one’s life expectancy will increase. According to studies from the Great Depression, life expectancy increased in areas where unemployment increased. This may seem counterintuitive, but the idea is that unemployed people will spend less money on alcohol and drugs, resulting in improved health. They may do fewer car trips and hence have a lower risk of being involved in fatal car accidents. NPR
The rate of inflation tends to reduce during a recession. Because unemployment rises, wage inflation is moderated. Firms also respond to decreased demand by lowering prices.
Those on fixed incomes or who have cash savings may profit from the decrease in inflation. It may also aid in the reduction of long-term inflationary pressures. For example, the 1980/81 recession helped to bring inflation down from 1970s highs.
After the Lawson boom and double-digit inflation, the 1991 Recession struck.
Efficiency increase?
It has been suggested that a recession encourages businesses to become more efficient or go out of business. A recession might hasten the ‘creative destruction’ process. Where inefficient businesses fail, efficient businesses thrive.
Covid Recession 2020
The Covid-19 epidemic was to blame for the terrible recession of 2020. Some industries were particularly heavily damaged by the recession (leisure, travel, tourism, bingo halls). However, several businesses benefited greatly from the Covid-recession. We shifted to online delivery when consumers stopped going to the high street and shopping malls. Online behemoths like Amazon saw a big boost in sales. For example, Amazon’s market capitalisation increased by $570 billion in the first seven months of 2020, owing to strong sales growth (Forbes).
Profitability hasn’t kept pace with Amazon’s surge in sales. Because necessities like toilet paper have a low profit margin, profit growth has been restrained. Amazon has taken the uncommon step of reducing demand at times. They also experienced additional costs as a result of Covid, such as paying for overtime and dealing with Covid outbreaks in their warehouses. However, due to increased demand for online streaming, Amazon saw fast development in its cloud computing networks. These are the more profitable areas of the business.
Apple, Google, and Facebook all had significant revenue and profit growth during an era when companies with a strong online presence benefited.
The current recession is unique in that there are more huge winners and losers than ever before. It all depends on how the virus’s dynamics effect the firm as well as aggregate demand.
Lower Prices
Houses tend to stay on the market longer during a recession because there are fewer purchasers. As a result, sellers are more likely to reduce their listing prices in order to make their home easier to sell. You might even strike it rich by purchasing a home at an auction.
Lower Mortgage Rates
During a recession, the Federal Reserve usually reduces interest rates to stimulate the economy. As a result, institutions, particularly mortgage lenders, are decreasing their rates. You will pay less for your property over time if you have a lower mortgage rate. It might be a considerable savings depending on how low the rate drops.
What are the two most serious issues that come with a recession?
Readers’ Question: Identify and explain economic elements that may be negatively impacted by the current economic downturn.
- Output is decreasing. There will be less production, resulting in reduced real GDP and average earnings. Wages tend to rise at a considerably slower pace, if at all.
- Unemployment. The most serious consequence of a recession is an increase in cyclical unemployment. Because businesses are producing less, they are employing fewer people, resulting in an increase in unemployment.
- Borrowing by the government is increasing. Government finances tend to deteriorate during a recession. Because of the greater unemployment rate, people pay fewer taxes and have to spend more on unemployment benefits. Markets may become concerned about the level of government borrowing as a result of this deterioration in government finances, leading to higher interest rates. This increase in bond yields may put pressure on governments to cut spending and raise taxes to reduce budget deficits. This could exacerbate the recession and make it more difficult to recover. This was especially problematic for many Eurozone economies during the recession of 2009. See also the Eurozone budgetary crisis.
- Depreciation of the currency.
- In a recession, currencies tend to depreciate because consumers predict reduced interest rates, so there is less demand for the currency. However, if there is a worldwide recession that affects all countries, this may not happen.
- Hysteresis. This is the claim that a rise in cyclical (temporary) unemployment can lead to a rise in structural (long-term) unemployment. During a recession, someone who has been unemployed for a year may become less employable (e.g. lose on the job training, e.t.c) See hysteresis for more information.
- Asset prices are declining. There is less demand for fixed assets such as housing during a recession. House price declines might exacerbate consumer spending declines and raise bank losses. A balance sheet recession (such as the one that occurred in 2009-10) is characterized by a drop in asset prices. Balance sheet recession is a term used to describe a period in which a company’s financial
- Rising unemployment has resulted in social difficulties, such as increasing rates of social isolation.
- Inequality has risen. A recession tends to exacerbate wealth disparities and poverty. Unemployment (and the reliance on unemployment benefits) is one of the most common causes of relative poverty.
- Protectionism is on the rise. Countries are frequently encouraged to respond to a global downturn with protectionist measures (e.g. raising import duties). This results in retaliation and a general fall in commerce, both of which have negative consequences.
Evaluation can recessions be beneficial?
- Some economists believe that a recession is required to address inflation. For example, the recessions of 1980 and 1991/92 in the United Kingdom.
- Recessions can encourage businesses to become more efficient, and the ‘creative destruction’ of a downturn can allow for the emergence of new businesses.
These factors, however, do not outweigh the recession’s significant personal and social costs.
US house prices
House prices decreased just before the recession began in 2006, and declining house prices contributed to the recession’s onset. However, as the recession began, property prices plummeted much worse.
Great Depression 1929-32
The Great Depression was a significantly more severe downturn, with output dropping by more than 26% in three years.
It resulted in a substantially greater rate of unemployment, which increased from 0% to 25% in just two years.
What causes a downturn?
Most recessions, on the other hand, are brought on by a complex combination of circumstances, such as high interest rates, poor consumer confidence, and stagnant or lower real wages in the job market. Bank runs and asset bubbles are two further instances of recession causes (see below for an explanation of these terms).
In a downturn, where should I place my money?
Federal bond funds, municipal bond funds, taxable corporate funds, money market funds, dividend funds, utilities mutual funds, large-cap funds, and hedge funds are among the options to examine.
Which companies are recession-proof?
The only industries that remain unaffected by a recession are those that are recession-proof. They are perfect industries for meeting people’s basic needs, whether in the form of a service or a product. Despite being financially strained, consumers’ needs are continually oriented to their trade, so they will most likely thrive and withstand the effects of the crisis.
The economic destruction has been mostly caused by the coronavirus for more than a yeara health disaster that continues to bring deaths and recession around the world. Even in the face of adversity, it is never a bad idea to create chances and lean into the challenges.
Take, for example, Disney. The company was created as the Great Depression was sweeping the country. The Disney brothers realized that America needed to be cheered up again in a moment of terrible despair. They were able to expand their firm as a result of this chance, and they were able to overcome the recession’s problems.
As a result, in current downturn, every individual, business, and investment should rethink their options and seek refuge in the so-called recession-proof industry.
The 9 best recession-proof enterprises that can survive this critical era are listed below, in no particular order.
Grocery and Food Stores
In an economic downturn, the food industry and grocery stores, unsurprisingly, thrive. During the recession, profits in grocery stores, fast food restaurants, and retail stores remained relatively stable. A good example is the frozen meal and coffee industry. Frozen meal manufacturers can anticipate a 4.8 percent increase in total sales. The retail coffee market, on the other hand, increased by 6%, a significant increase from the initial forecast of only 2%. No crisis, not even the apocalypse, is likely to stop people from eating and drinking.
However, this industry may still be vulnerable to the recession’s effects. During the past recession, each household’s food consumption fell by 7%, possibly because customers were more likely to buy on sale and discounted items or hunt for cheaper alternatives to minimize costs. However, the reality is that people can only cut their food spending so much.
Consumers’ eating habits are triggered and increased in times of crisis, which is interesting. When people are stressed, they crave and eat more, especially sweets and alcohol. During the Great Depression, popular chocolate bars such as Snickers and Mars were created. Cadbury chocolate sales have reportedly increased by 30% in tandem with McDonalds’ amazing business development during the 2008 recession. As a result, the food industry is one of the most recession-resistant industries.
Accounting and Tax Services
It must be so tempting to avoid paying those taxes! Regardless of whether there is a recession or not, taxes must be paid on time or face the repercussions.
What’s even worse is when an individual or a corporation tries to do their own bookkeeping in the hopes of saving money. While it appears to be a quick gain, there is a great deal of danger involved, and incorrect calculations could backfire and cause more problems down the road.
Resources should have been safeguarded by this stage, rather than causing potential harm. Entrusting a trained accountant to deliver the work while you focus on and target revenues is a prudent decision to make, especially during difficult circumstances.
Accounting firms are another business area that thrives during economic downturns. It is extremely important for firms to have a robust accounting and bookkeeping system in place during recessions.
In times of slowing economic development, a company’s initial instinct will be to decrease costs and keep its finances under control. When cash flow is limited, many businesses will want accounting assistance. When a business is in trouble, an accountant’s skills are needed to review spending, manage remaining resources, and offer sensible advise on how to resolve financial issues.
Unfortunately, most business owners are unaware of their tax obligations. Accounting assistance will be able to tell you where these tax benefits can help you. More importantly, these experts will assist a person in navigating and comprehending the latest adjustments in company regulations brought on by the COVID-19 pandemic. When an economic downturn strikes, it is critical to rely on accounting help.
Financial Advisors
Have you noticed that a growing number of financial advisors and money managers are emerging from the shadows recently? The most basic explanation is that they are in the business of providing services that people will require as the market falls. To put it frankly, their work was designed specifically for current economic downturn.
Business owners, investors, and people with significant investments and assets all want to protect their fortune and ensure that they are well taken care of in the event of a disaster.
It is only normal for us to be concerned and defensive with our resources during a downturn in the economy. Financial advisors frequently advance at this phase because their profession is in high demand. Their sound guidance will inform investors about the various types of investment accounts available.
Information Technology
I.T. occupations are clearly the most in-demand and recession-proof profession in today’s age of technical breakthroughs. Its major task is to promote innovation, which leads to business success. In reality, the current recession is one of the reasons for increased web traffic, which leads to increased sales.
Every department in today’s business world relies on information technology to improve their work method and strategy. A company can’t function without information technology. During this epidemic, the information technology industry has shown a lot of potential for enterprises, especially now that the work-from-home experience is widely accepted. More businesses are allowing employees to work from home.
Close, on the other hand, is an internal dialer software designed to help every sales team achieve maximum growth and productivity. By bringing predictive dialers to their firm and so producing more sales, a company may stay ahead of their competitors with this creation. The website has been up and running since 2013, and it is still developing. This is an excellent example of how information technology modernisation benefits the business world.
Furthermore, Information Technology is one of the key factors that has contributed to the expansion of international trade and markets in recent years. Businesses that engage in linked assets and exploit information technology get closer to the international market, perhaps growing sales despite the recession.
We’ll even go so far as to argue that, in order to increase efficiency, every industry today will need to include information technology. Their service has shown to be beneficial to businesses. Businesses that refuse to adapt to technological improvements face a gloomy future. There are several compelling reasons why information technology is regarded as the world’s fastest-growing industry. Their services are required today and will continue to be required in the future.
Telecommunications
The Telecom business, like Information Technology, is here to stay, regardless of the economy. The consequences of the Coronavirus outbreak only served to emphasize the industry’s importance today.
To communicate online, people need their phones, among other things. As a result, the industry became inextricably linked to the global economy. People are interested in learning how to talk naturally in the local language of their clients as a result of the globalization of consumers. Furthermore, as the telecom industry has innovated, online enterprises have thrived alongside it.
Many people have been able to make money and learn new skills without having to leave their homes thanks to the online sector. People can also sell products online as a result of this sector.
Furthermore, the pandemic breakout prompted institutions to follow suit. Since the implementation of social distance, telecommunication has become a prerequisite in educational institutions, along with the instantaneous rise of study materials.
Despite the fact that some consumers have reduced their devices, telecommunications sales continue to grow, demonstrating that it is one of the most recession-proof industries. Even before the pandemic, the sector had demonstrated its efficacy, and it will undoubtedly play a key part in the current global catastrophe.
Healthcare Services and Providers
Someone will become unwell every now and then. When people are sick, they will always seek medical help, even if their funds are limited. Because of its price inelasticity, the healthcare industry might be considered recession-proof.
Clinical institutions and medical occupations are among the few industries that are unaffected by economic downturns. In difficult economic circumstances, this company is unlikely to cut costs and retrench.
For example, during the Great Recession, the Occupational Employment Statistics (OES) assessed nurse employment in the United States. Focusing on the recessionary years of 2007 to 2010, the study found that, despite a nationwide job loss of roughly 7,257,090 million jobs, nurse employment increased by 7.6% over the same period.
Healthcare and food (discussed before) are two key industries that can thrive during a downturn. We’ve even seen the public health response to the COVID-19 outbreak today, and how healthcare providers play a key role in the midst of unprecedented financial instability.
However, due to the unique circumstances and emergencies brought on by the pandemic, several medical industries, such as surgeries, were forced to close and were unable to thrive in comparison to past recessions. Furthermore, we thank our COVID-19 front-line fighters who are risking their lives to combat the virus at this critical time. Doctors and nurses in the front lines, in particular.
Auto Maintenance and Utility Services
During recessions, companies that focus on utilities, repair, and maintenance will likely survive and prosper. People are even returning to do-it-yourself crafts and mending items on their own. Some fixes, however, are simply beyond our control. This is where the service industry comes into play.
Things will eventually fall down as time passes. The so-called wear and tear elements on autos will require special attention. Plumbers will need to inspect a leak in water pipelines for utilities. During times of adversity, the services provided by these handymen remain unaffected. This is also true of companies who sell tools and materials for home and car improvement.
Furthermore, as the current epidemic continues to spread around the world, coronavirus cleaning and disinfection services are gaining popularity as they become more valuable to businesses and residences affected by the outbreak.
Despite widespread uncertainty and the arrival of the new normal, utility services remained afloat and continued their operations alongside new cleaning-related enterprises. You might wonder why this is the case. The simple reason for this phenomena is because such services are already recognized necessary by the general public, particularly in light of today’s global health crises.
Furthermore, with the rise of work-from-home setups in our shelter, the utilities industry is unlikely to fade away anytime soon. Furthermore, businesses would need to engage cleaning services to ensure cleanliness and avoid being cited for health breaches. As a result of post-pandemic ramifications, this sector is here to stay.
The bottom line is that, as a result of the pandemic, everyone appears to be more concerned about hygiene. As a result, demand for cleaning equipment and commercial cleaning services increased dramatically. Cleaning is unquestionably one of the few businesses that thrived during the COVID era.
Children’s Goods and Dating Industry
Diapers, milk, and bottles, among other basics for a newborn, are almost recession-proof. You must provide for your child regardless of your financial status when you are raising a child. As a result, firms that sell infant and childcare supplies can weather a downturn and rarely fail.
For the sake of their children’s health, parents are now compelled to confine them within their houses. The times have changed, and most parents are now responsible for teaching and entertaining their children. As a result of the pandemic’s consequences, the number of purchases of children’s books, games, and crafts increased dramatically.
Even children’s toys and clothing are recession-resistant for both practical and emotional reasons. The total sales of children’s toys in the United States increased by 27 percent in March of last year. Parents cannot deny the reality that their children grow up quickly, necessitating the purchase of larger clothing and shoes. And, while a toy is only a “wish,” parents will require it to calm their children.
Parents, being the loving, caring individuals that they are, would rather save money in other areas than forego their children’s necessities.
Another consequence of the COVID-19 pandemic today is disturbed family planning, which leads to unwanted pregnancies, as a result of long-term lockdowns and community quarantine. As a result, while starting a recession-proof firm, childcare items cannot be disregarded.
Nonetheless, family planning is still important and should be followed. When family planning is stated, individuals are likely to interpret it as non-sex information. Birth control is only encouraged by family planning. Couples can still be affectionate and fun with lingerie and other such items, but they must use prudence.
On that topic, the pandemic epidemic has shown the corporate world that the dating sector is still alive and well, and recession-proof. As it happens, one piece claims that consumer interest in the subject has not waned.
Courier Services
This is what sets courier services apart from other companies. With the rise of E-commerce during this pandemic, freight and logistics companies are well-positioned and unfazed in today’s global market.
Similarly to maintenance and utility services, industries that provide delivery services are able to stay afloat during economic downturns. During today’s crisis, social distancing established around the world had a good impact on the freight business. Even routine errands like grocery shopping are now available through delivery services like the Grab App, one of Southeast Asia’s most popular mobile apps for consumer mobility. Of course, this means that the industry will have to adjust to the pandemic’s changes.
However, the sector has become sufficiently diverse to reap significant benefits and profit from internet transactions. Furthermore, shipping behemoths can save millions by leveraging fuel, a commodity that typically falls in price during economic downturns.
Whatever economic condition we are in, courier services will continue to thrive since consumers are obligated to send parcels from time to time, whether for personal or business reasons. Being able to function and provide that one-of-a-kind kind of support to customers makes them less vulnerable to economic downturns. Furthermore, their ability to target both the BTC and BTB sectors earns them a place among the top recession-proof enterprises.