Businesses That Thrive During a Recession

      All the red flags indicating a looming recession are up. Inflation is increasing, interest rates are sky-high, and mass layoffs have begun. 

      Over the last few months, we’ve seen 11,000 people dismissed from Meta, 14% of the workforce cut at Stripe, and 550 employees dismissed from Opendoor Technologies. Twitter, Amazon, Zillow, and Disney announced their own layoffs and hiring freezes. 

      While the damage is limited chiefly to tech firms, it may extend to other industries in the coming months.

      While news of a recession tends to sound off alarm bells to investors, economists, and the general public, specific industries tend to remain stable and even outperform their peers. Let’s look at the sectors primed to ride through the upcoming recession.

      Food and Groceries

      The need to eat and drink doesn’t go away in a recession. While consumers may reduce their meals out on the town, they’ll supplement them with dinners at home. More grocery shopping leads to better performance among consumer staple brands like PepsiCo, Procter & Gamble, and Tyson Foods.

      Discount grocers, including Walmart, Dollar General, and Costco, will perform well. Consumers will continue to purchase personal care products like shampoo, razors, and soap, so these industries aren’t likely to see much damage from the current economic climate.

      Do-It-Yourself Sectors

      People tend to get creative with their home projects when money gets tight. Rather than hiring someone to paint their home or repair their fence, they’ll purchase the tools and materials and handle the task themselves.

      Similarly, people tend to put car maintenance on hold. Rather than take their car to the auto shop for an oil change or new brakes, they’ll perform the repairs themselves, using materials they find at Auto Zone or O’Reilly. 

      You can expect companies that offer materials for DIY projects and home maintenance to outperform others in the market; look to Home Depot and Lowe’s for strong earnings, even during a recession.

      Freight and Logistics

      The supply chain doesn’t stop during a recession. Products still need to move from one location to another, so industries that support shipping will show resilience during a downturn. Railroads, trucking companies, cargo shipping, and warehouses tend to do well during an economic downturn. 

      Companies like BNSF, Maersk, Union Pacific, and Old Dominion Freight will continue moving goods across the nation. 

      However, air travel and vacation tend to take a dive. We may see a slowdown in business and personal travel on airlines, and cruise ships may have fewer customers.

      Healthcare

      Another strong-performing sector during a recession is healthcare. Health problems don’t simply disappear; individuals still need to manage their conditions, and people will get sick. Hospitals, pharmaceutical companies, and insurance providers can expect to remain resilient. 

      Over-the-counter healthcare items, like ibuprofen and first-aid supplies, will also maintain their sales. 

      However, healthcare companies that require lots of investment or research, such as startups and biopharmaceutical companies, may not fare as well.

      Utilities and Energy

      We have to keep the lights on, the cars running, and the heat going, so companies in the utilities and energy sector will continue to perform well. Oil and gas organizations, electricity, waste collection, and water companies shouldn’t experience much of a hit from the recession.

      Telecommunications providers will also do well, as most people are reluctant to give up their internet connection even if times are rough.

      Causes of the Upcoming Recession

      Recessions typically occur after significant disruptions to the economy. We experienced a very brief recession with the onset of COVID-19. Still, the government kept it from becoming long-lasting by issuing stimulus checks and lowering interest rates.

      Disruptions to the supply chain soon after COVID-19 caused more economic crises, but conditions slowly improved, and we’re in a much better position than we were in 2021. 

      Today’s crisis appears to be a combination of factors. The Russia-Ukraine war has devastated large parts of the supply chain for wheat and adversely impacted economies throughout Europe and Asia. 

      We’re feeling some pain from other nations that are struggling. While the U.S. has been successful at tamping down the speed of inflation growth through increasing interest rates, we haven’t yet crossed the finish line.

      Some economists predict a severe, long-lasting recession that can impact us for several years, while others believe it will be much shorter and less disruptive. 

      While we can prepare for an economic downturn, the tea leaves aren’t quite ready to be read, so the longevity of the recession is anyone’s guess.

      Preparing Your Business for an Upcoming Recession

      If your organization isn’t in a recession-proof sector, there are actions you can take to prevent the adverse impact on your company.

      First, try to eliminate any high-interest debt with your creditors. Keeping up with your typical payments may become more complicated if revenues fall. Companies that can’t afford to pay off loans should try to make proactive arrangements to limit the monthly repayment amount or lower the interest rate.

      Next, do reconnaissance to identify expenses your organization doesn’t need to keep functioning. If you can eliminate unnecessary costs now, you can put an extra buffer in your cash flow to shield you through rough financial times.

      If you have serious concerns about declining revenues or lack of cash, consider implementing a hiring freeze. A hiring freeze allows you to keep your current employees but stops future hires until the economic waters become clearer. 

      You might try instituting a cross-training program for your employees. Cross-training helps workers develop new skills and gives you an extra set of knowledgeable hands if a key employee decides to leave. 

      Above all, keep a positive mindset and a steady hand. While the current economic climate may not be rose-colored, it may turn around if the Fed can maintain inflation, the situation in Ukraine improves, and we can keep the COVID-19 disruptions to a minimum.

      Recession-Proof Doesn’t Mean Foolproof

      If your organization falls into one of the essential sectors that don’t see much disruption from a recession, you’re at an advantage. However, you should still make strategic decisions now to reduce the chances of negative impacts on your organization’s income. 

      Keep a close eye on your financials and cash flow, and be ready to make some changes if the economy takes a further turn for the worse. 

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