5 Industries Negatively Affected By An Economic Recovery

By Ryan C. Fuhrmann | May 15, 2012 AAA

The general thinking is that recessions are bad for business. However, a handful of industries do quite well during downturns and would actually prefer that the economy struggle a bit. On the flip side, they tend to be negatively affected when the economy starts to recover. Below are five such industries.

Discount Stores
Economic downturns necessitate belt-tightening on the part of consumers. In a falling economy, high-end fashion, automobiles, boats and homes see a plummet in demand as individuals focus on all but the most core necessities. Discount stores, which include Dollar General, TJ Maxx, and Steinmart, tend to see a corresponding boost in demand during these downturns. Even Walmart, the largest retailer on earth, tends to do well in difficult economic climates. On the flip side, these businesses see their popularity wane when the business cycle improves and consumers become less concerned about losing their jobs.

Education
Job losses during recessions leave those unfortunate enough to be handed a pink slip with free time. Many use their time constructively and return to school to either learn a new job skill or add a degree that will make them more desirable to current employers, or in preparation for when the employment market picks up. One study by the Pew Research Center detailed that community colleges experienced record enrollment trends during the credit crisis. It specifically cited individuals in the auto industry returning to school. The center even mentioned a drop in high school dropouts, which makes sense as there is less opportunity to find a job instead of going to class. In an upturn, these trends reverse as earning a paycheck becomes more possible and makes education look less appealing in comparison.

Grocery Stores
In similar fashion to the alcohol-related firms, consumers tend to eat at home more often in a down economy. The credit crisis saw the restaurant industry suffer mightily as a result of this phenomenon. The higher end of the market usually tends to suffer in a downturn and saw firms such as Ruth's Hospitality Corp, which operates Ruth's Chris Steakhouses as well as Mitchell's Fish Market, fight for survival. This trend favored food retailers such as Kroger and Walmart, which are two of the largest grocery stores in the country. In an economic recovery, their growth tends to slow because of less traffic in the grocery aisles.

SEE: Evaluating Grocery Store Stocks

Spirits
The spirits and alcohol space is unique in that it can benefit in both good and bad times. As with retail, the higher end of the market does well in an upswing as consumers have more discretionary dollars to throw around and try a more expensive bottle of wine or whiskey. A shift also occurs as people dine out less, meaning they buy more alcohol for drinking at home, as opposed to at a restaurant. It got so bad in New York during the credit crisis that it looked to pass legislation to allow wine sales in grocery stores. But overall, people are just as likely to drink and drown their sorrows in an economic downturn. As you might expect, people trade down to cheaper brands during a recession.

Pawn Shops
Pawn shops euphemistically refer to themselves as "specialty consumer financial services" firms and tend to do well when people need money. Labor-intensive jobs, such as those in the manufacturing and homebuilding industries, are very economically sensitive and lay off workers in downturns. Part of this work demographic doesn't qualify for traditional credit offered by banks and credit card companies and means they sometimes have to rely on pawn shops, which offer high-interest loans and take personal property as collateral.

The Bottom Line
For the most part, the above industries do less well during economic recoveries. Overall, these spaces would prefer a downturn and the chance to profit from a gloomier business climate.

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