The end of the calendar year is frequently a time of reflection for events that occurred over the past 12 months. It is also a point at which predictions are made for the coming year and for trying to discern trends that will last over the coming few years. With that, here is an overview of five industries worth watching for 2011 and over the next couple of calendar periods. In terms of facts, figures and projected growth rates, many stem from The Economist's Economic Intelligence Unit, which projects growth rates in the coming year for global economies and industries in one of its end-of-year publications. (For related reading, also check out Industries Where Fortunes Rise As The Snow Falls.) IN PICTURES: 5 "New" Rules For Safe Investing
The industry that came close to bringing many global economies to their knees is in the midst of a strong and sustainable recovery. Profits in the coming year are expected to return and even exceed pre-crisis levels as banks continue to repair their balance sheets and the industry overall shifts from government-injected capital and returns to self sufficiency.
Changes that consumers will continue to see include rising interest rates for credit card and mortgage loans, though late fees and other fees should continue to feel pressure from Washington. A current program in the works is to restrict the amounts that financial institutions can charge on debit card transactions, though any fee savings will likely stay with retailers.
Demographic trends should continue to work in the favor of the healthcare industry in 2011 and beyond. Aging populations, especially in Japan and many parts of Europe, mean increased spending through pharmaceutical sales, hip and knee replacements and doctor visits.
Patent expirations from branded drugs will continue for the next several years and will further shift the playing field to generic drug makers. It won't be until 2012 that many aspects of recent healthcare legislation will take effect in the U.S., so it will continue to lead the world in healthcare spending. Currently, more than 16% of GDP is expended on healthcare in the United States. In the rest of the world, it is closer to 10%.
Travel and Tourism
An improving economy helps drive discretionary spending. At the top of most consumers' lists is travel and tourism. Spending on hotels was hit by a double whammy of a recession and many years of rapid building, but should continue to see supply and demand come into better balance. And after many years of overcapacity, consolidation in the airline industry has started to improve the profit outlooks and balance sheets of many airlines throughout the world.
The industry will continue to be economically sensitive and is always susceptible to security concerns. Economically, 2011 should see smooth sailing for many tourism providers and travel destinations, and though security concerns will always be prevalent, it has been some time since a major event has shaken up the industry.
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The consumer staples industry stands out in any economic climate for the stability of its demand. Consumers always need to eat and buy basic necessities such as food, clothing, as well as maintaining and heating homes. Prices can be volatile, as they rely on commodity prices that fluctuate along with global weather patterns and uneven financial markets, but for the most part, the industry is about as stable as can be found out there. Worries for the coming year stem from food and other commodity inflation, but so far prices rises haven't been too traumatic.
The domestic defense industry is in the doldrums due to budget cutbacks and the winding down of major combat operations in Iraq and Afghanistan. Since the tragedies of September 11, 2001, defense spending has grown at a rapid clip close to 10% annually. That figure will likely be cut in half going forward, but is still pretty strong by historical standards.
Additionally, tensions in the Korean peninsula are at risk of rising and could start a new conflict. And globally, emerging markets are set to increase defense spending dramatically and one day hope to compete with the approximately $700 billion spent annually on defense in the U.S. China is a distant second in the world, though it is not clear what it spends each year on defense. India is also expected to increase its commitment to defense, as is Russia. Growth in U.S. ally spending helps the domestic industry in terms of exports.
The Bottom Line
Major industry drivers for the coming year stem from an improving economy and demand for goods and services from emerging markets. Healthcare, defense and consumer staples are less affected by the business cycle, though they do have their own respective industry drivers that must be watched closely. Financials and tourism are more economically sensitive, but given the predictions for improvements going forward, look interesting for their growth potential over the next several years. (For related reading, take a look at Industries That Thrive On Recession.)
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