Is a recession looming? Top 4 recession-proof industries

Updated: Feb 13


In 2008 The World Economy Faced Collapse...

Graduating from University in July 2008 was not ideal timing as the world economy was on the verge of collapse. On Oct. 9th 2007, the Dow hit a pre-recession high. By March 5th 2009, it had dropped more than 50%.


A Startup in a Storm

Among the media cacophony of increasing despair, I turned my back on the conventional graduate programme route. Instead I got my start at a small startup, a short bike ride from my childhood home. This would turn out to be a great decision. The company would grow from a small attic space in Yorkshire, UK, to become an international company working across four continents that was eventually bought by a large NASDAQ-listed company. This helped to catapult my career with roles in the Middle East, Australia and North America at bootstrapped, public and venture-backed companies. Fortunately the industries my wife and I chose, energy and telecoms, were largely recession proof. Power and communication is required regardless of the state of the world economy. These companies have a low beta, meaning that when the world's stock markets plummet, shares in these companies fall by a lesser amount.


Recession Proof Industries

As of February 2020 we're in the second longest bull run of all time, beaten only by the post-World War II run that started in 1949 and lasted for over seven years. Here's the top 5 and bottom 5 industries that are most likely to be impacted by recession, based on their betas (source data). A beta over 1 is relatively more sensitive to a recession. A beta under 1 is relatively less sensitive to a recession.


Top 4 Recession Proof Industries

  • Financial Services (excludes banks & insurance companies) - 0.1

  • Utilities - 0.19

  • Retail (grocery and food) - 0.35

  • Power - 0.38

We can see that these industries reflect the bottom tier of Maslow's Hierarchy of Needs. In a recession, people will cut spending, but less so on basic necessities such as water, food, shelter and warmth.


Bottom 4 Industries During Recession

  • Transportation (Railroads) - 1.89

  • Computers/ Peripherals - 1.64

  • Shipbuilding and Marine - 1.57

  • Software (Internet) - 1.5

The bottom four are driven by international trade. Railroads and ships are required to move goods between places and countries, and these volumes contract during recession. The link to computers and software is less obvious, but likely reflects consumer confidence waning which will reduce demand for luxury goods and services.


Implications

The takeaway is that if you're concerned about future job security during a recession, try looking at industry betas and choosing one that fares better during hard times.



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