We’re just beginning to see the end of the pandemic crisis and already another economic worry is taking its place. Deutsche Bank (along with a host of other authoritative sources) has joined in sounding the alarm for an impending U.S. recession — perhaps as soon as 2023.
All recessions are different. Even defining the term recession isn’t easy, although it’s generally seen as a fall in GDP in two successive quarters.
There’s no magic 8-ball that can help you predict which areas of the economy will thrive and which will suffer in any given recession scenario. Even so, there are certain areas of business that historically do pretty well when the economy slows down.
While this is by no means a comprehensive list, here are four areas that are often discussed as some of the most recession-proof areas of the economy.
People need products. It’s as simple as that. A recession can impact the demand for certain items, but at the end of the day, the supply chain still needs to continue to flow.
This makes industrial freight and other logistical supply chain elements a fairly safe bet during a recession. Freight companies did surprisingly well during the Great Recession over a decade ago, as did companies that create products for moving freight.
Part of the reason for this is that the freight industry goes through its own rhythms and recession cycles (usually around once every four years). This makes them less susceptible to overreacting to the larger economic trends that surround them.
It’s worth noting that shipping is slightly different. Ocean shipping was hard hit by the last major recession and can fall victim to shifts in demand. Nevertheless, many of the factors that made the Great Recession hard for shippers likely wouldn’t repeat themselves if a normal economic downturn were to take place.
Food is a recurring need for all humans. This means restaurants and grocers will continue to have patrons no matter what shape the economy is in.
It should come as no surprise that low-cost food options tend to be particularly successful in a recession. This applies to food-based retailers like Kroger. Suppliers, such as General Mills and PepsiCo also have the potential to heat up during a recession.
Affordable dining also has prime recession-proof potential. For instance, Olive Garden owner Darden Restaurants, Inc did well during the Great Recession. McDonald’s did, too. In fact, the mammoth restaurant chain has a reputation as one of the best recession stocks in the entire market.
Retailers that cater to the cost-conscious are in a prime position to thrive during a recession. As paychecks shrink and budgets retract, consumers spend less. This scarcity of resources often pushes them to put the extra work into finding deals.
This naturally raises the stock (quite literally) of discount retailers like Walmart, Cosco, and Dollar Tree. Dollar General has a particularly sterling reputation as a stock darling of the Great Recession. In fact, the chain continues to be touted as a quality recession-proof stock to buy heading into the unpredictable 2020s.
If you’ve noticed a practical theme on this list thus far, it’s not a coincidence. Those who create products and services that address necessities often fair the best when a recession strikes.
Utilities are another way area that is tough to cut out of the budget. Consumers can be more careful with how they use things like water and electricity, but they still need some degree of these resources to function.
Even quiet-yet-significant utilities like waste management can do well in a recession where people continue to generate garbage, regardless of their budgets.
These analyses of how past recessions have impacted certain areas of the economy are informative. They help us gain a better picture of how the economy — both domestic and global — reacts to a recession.
But they leave one area unaddressed. As a C-suite leader, how can you prepare your organization for a potential period of temporary economic decline? If trade and industrial activity are reduced, how can your organization react in a healthy manner?
“As a C-suite leader, how can you prepare your organization for a potential period of temporary economic decline?”
It’s important for leaders to consider the possibility of a recession and what they can do now to prepare for the future. Is your leadership ready to take on the difficulties presented by a protracted economic downturn?
Our executive search firm at Stanton Chase’s Los Angeles office can identify talent gaps within a leadership team that will overcompensate for the likelihood of a recessionary period—and put the right fit executives in place to keep digital transformation on pace, and sales momentum sustained, through slower periods. Strong leaders often make the difference between winning and losing when volatility and big challenges are the norm.
If you’re concerned about your company’s ability to weather a recession, contact us. We’d love to put our leadership and recruitment experience to work helping you prepare your company to survive and thrive in the years ahead.
Peter Deragon is the Managing Director of Stanton Chase Los Angeles, and as Global Practice Leader of the Supply Chain, Logistics, and Transportation Practice Group, Peter is also active in the CFO Practice Group and financial services, where he started his career.