What Industries Are Recession Proof?
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While it is by no means a pleasurable experience, the simple truth of the matter is that recessions are a part of life and something we should accept as an occasional occurrence. We are going to face them once in a while – there is no avoiding that fact.
Depending on your perspective (and at the risk of sounding a little existential), the very fact that recessions are inevitable at some point means we are always approaching one.
Thankfully, we spend most of our time out of a recession. However, even the most optimistic of people would have to admit that the economy is looking a little fragile at the moment and that a recession is probably imminent.
Interest rates are rising. Banks are suddenly collapsing. The price of oil and gas is currently astronomical, while the world looks nervously towards Russia and Ukraine, uncertain how that particular tragedy will develop further.
Oddly, and despite the usual indicators, we are not actually in a recession yet. But the signs are certainly not looking too great for the immediate future. Either way, we should always prepare ourselves for the inevitable.
It is in that spirit of preparation that we bring you this article today, in which we consider the safer ‘recession-proof’ industries for investing and parking your money.
Our compilation of recession-proof businesses and industries will start with the more obvious ‘safe bets’ before moving on to a few less-obvious, distinctive industries that we have observed and identified as potentially self-shielded from the harder times.
But first, what actually qualifies an industry as recession-proof? Is it a subjective observation or an objective certainty? The answer is probably a little of both. Let’s take a look.
What Is the Definition of Recession Proof?
The easiest way to identify which industries are recession-proof is to consider one key factor: is the product or service essential to life?
If an industry is driven mostly by branding or relies on consumers with disposable cash, it probably isn’t a recession-proof business. The fashion industry, for example.
Conversely, if an industry is buried deep into the function and fabric of society – indispensable, almost – it probably is recession-proof. Groceries, for example.
That being said, recession-proof does not always equal fail-proof. Plenty of fashion houses breeze through a recession relatively unharmed, and plenty of grocery stores go bankrupt during the same tough times, although both of those examples would be anomalies.
But while no industry is completely immune to the effects of a recession, there are certain industries that have always shown resilience during economic downturns. These industries have demonstrated a greater ability to withstand challenging times and even thrive amidst adversity.
We shall take a look at those industries before moving on to a few other sectors further down the article, which might be considered outside of the norm.
Traditional Recession-Proof Industries
Let’s examine the recession-defying stalwarts that you can usually count on, year after year, decade after decade.
Food & Groceries
Beginning with probably the most obvious recession-proof business of them all – owing to the simple and undeniable fact that we all need to eat.
While specific purchasing habits may vary during tougher times, overall spending at supermarkets and grocery stores tends to remain relatively stable for most people, regardless of the economic climate.
Ironically, some people may even increase their grocery store expenditures as they cut back on costly dining-out experiences. Where luxury expenditures falter during a recession, the basics often improve.
Obviously, higher-end supermarkets such as Sprouts Farmers Market may experience a very slight dip compared to budget-focused stores such as Lidl, although you would expect that. Nevertheless, the grocery and food industry (encompassing both stores and suppliers) is one of the most steadfast sectors during economic turbulence.
Makeup and Cosmetics
An interesting element of psychology enters the fold with this next choice. During times of recession, there is, quite surprisingly, a notable surge in purchases of cosmetic products.
This might be a contradiction of our previous ascertain that luxury expenditures falter during recessions – although we have stressed that there are anomalies to this rule. Makeup and cosmetics are one of the few peculiarities in this regard.
The underlying logic is that people who are concerned about their finances seek solace in affordable indulgences that may uplift their spirits. In that sense, makeup and other cosmetics become a way to alleviate the stress and anxiety caused by monetary constraints. A way to compensate for the gloom, so to speak.
What is possibly more surprising is that research indicates cosmetic purchasing habits do not change during recessions: you might logically expect an increase in the budget makeup brands and a decrease in the higher-priced brands, but that is not the case. Everything stays relatively stable through the general economic turbulence. Brand loyalty remains constant in this sector, despite recessions.
Investing in utilities may not evoke the same thrill and verve as investing in the latest Silicon Valley tech, but when it comes to weathering recessions, utilities prove to be a solid choice.
Again, the reasons for this are quite obvious: we are not particularly enamored with chilly homes, and most of us prefer a nice leisurely hot shower as opposed to washing in a cold ditch.
Utilities are also renowned for their stability. Our consumption of electricity, water, and other essential services remains relatively consistent, irrespective of any economic fluctuations. The predictable demand for electricity, gas, water, telephone, and (more recently) internet, translates into stable revenues – which is always an attractive prospect for most people when looking to invest.
Another attractive feature is that utilities usually offer quite healthy dividends, providing a source of steady income. Additionally, during challenging economic times, utilities can benefit from lower interest rates, enabling them to borrow at reduced costs for infrastructure maintenance or even expansion.
Due to strict regulations, the entry of significant new competitors into the sector is limited, leaving most utilities mercifully free of aggressive, well-funded startups looking to take a share of the revenue.
Healthcare is frequently cited as one of the set-in-stone recession-proof businesses and industries. The reasoning behind this claim is rooted in the fact that people will always require medical care, seldom opting to avoid necessary treatments when their health requires it.
When it comes down to it, health ranks among the chief primary concerns for most people, who would usually cite ‘health and wealth’ as the main objectives in life.
A key factor contributing to the recession-resistant nature of healthcare is the prevalent insurance system in the United States, wherein insurance coverage largely mitigates the full cost burden for many individuals, regardless of economic fluctuations and financial uncertainty.
Therefore, the demand for healthcare services remains relatively stable, regardless of any looming or current recessions. Almost untouched, actually.
Real estate (or, more specifically, wholesale real estate) may not be the first industry that springs to mind for most people when considering recession-resistant businesses. However, real estate remains a good investment during recessions, primarily due to the nature of how the wholesale business model functions.
To explain why this is such a viable option, it would help if we explain briefly how the wholesale real estate business model works – for those who may be uninitiated.
In the most simple terms, real estate wholesalers connect buyers with sellers, proactively seeking out homeowners who may not have their properties listed on the market. Once a willing seller is found, wholesalers reach out to their pre-compiled list of buyers interested in such properties, which are typically real estate investors.
In exchange for facilitating these transactions, wholesalers earn a profit margin ranging from a few thousand dollars to tens or even hundreds of thousands. Crucially, wholesalers are not required to take possession of the houses themselves, as the deals are quite swiftly closed.
Wholesale real estate benefits from the almost perfect scenario of performing very well during both economic extremes of thriving or faltering. The reasons for this are, again, quite logical.
During a thriving economy, there is a demand for selling older (or even dilapidated) houses as property owners look to achieve new milestones in life. In challenging periods, distressed homeowners seek quick, hassle-free cash for properties that may not sell rapidly through traditional means in a competitive market.
Consequently, wholesalers (and those investing in this industry) can be assured of potential earnings in all economic situations. Although more effort is required in terms of research and due diligence, in comparison to something like the grocery industry.
During recessions, insurance can prove to be a sound investment for two primary factors. Firstly, insurance benefits from a relatively negligible decline compared to other industries because many forms of insurance – such as vehicle insurance – are legally required.
Secondly, the insurance industry usually carries a significant amount of financial reserves and investments. This enables them to white-knuckle recessions more comfortably than many other industries.
If anything, this means they also have the ability to profit during a recession, potentially. For example, insurance companies often invest in government and corporate bonds. During a recession, the interest rates often (but not always) decrease, meaning the value of the bonds they hold is increased.
Alcohol, Tobacco, and Pharmaceuticals
This segment represents the somber and (to many) less morally astute side of recession-proof business speculation. While we take no pleasure in stating this, It is an unfortunate reality of life that recessions bring about job losses, financial struggles, and even foreclosures, all of which can be overwhelming for those already grappling with limited resources.
Sadly, many unfortunate people increase alcohol, tobacco, and legal drug consumption as a means of seeking comfort and relaxation amidst economic hardships. If you have ever had an awful day at work and sought relief in a glass of wine or a refreshing beer, you will empathize to some degree, although the scale is vastly different.
The facts speak for themselves. During recessions, the demand for alcohol, tobacco, and some (but not all) pharmaceuticals experiences either a boost in sales or a negligible decline. Either way, these are not industries that are typically ‘hit hard’ by a recession to any serious degree.
Again, we take no pleasure in reporting this – and we are by no means joyfully encouraging you to pursue this as an investment option – but the point of this article is to inform you of industries that are typically recession-proof. There is simply no getting away from the fact that this particular sector usually avoids a major downturn during a harsh economy.
Less Traditional Recession-Proof Businesses
This might be a surprising entry to many, but the lobbying industry has emerged as relatively recession-proof in recent decades. During the last major recession, the industry grew by over $3 billion, in fact. There are reasons for that, but this isn’t a politically charged article, so we won’t elaborate.
Another less obvious recession-busting industry, but solid and well-performing nonetheless, is the fast food sector. Once again, the reasons for this are quite obvious and entirely logical: fast food restaurants tend to keep prices low during recessions, and they have the ability to do so, owing to immense buying power. Fast food sales quite often increase during a tough economy as, frankly, many people forgo expensive steaks for cheap burgers.
The gaming industry has also proved adept at dodging the symptoms of recession. As consumers avoid expensive entertainment options such as the theater and dining out, they replace them with cheaper alternatives such as gaming. While the games themselves are not always particularly cheap, the value to be had out of a $30 – $40 console game breaks down to cents per hour over the term of a recession. Gaming hours increase during economic gloom, and, in turn, so do sales.
Recessions are unavoidable and unfortunate – but with good financial planning and a few shrewd moves aimed at cutting back expenses, most business owners are able to weather the storm. Choosing to invest your capital into a more stable recession-proof business would be a solid forward-thinking move whenever it looks like a recession is approaching.
If you are a business owner, one of the more obvious strategies for beating a recession would be to cut down on overheads, not least of which would be your merchant payment provider fees. Payment Savvy is able to help in that regard by offering state-of-the-art merchant payment services at incredibly competitive rates through payment solutions that are tailored to your industry. Please do get in touch, and let’s discuss getting your business streamlined and more cost-efficient today!