DEFINITION of Declining Industry

A declining industry is an industry where growth is either negative or is not growing at the broader rate of economic growth. There are many reasons for a declining industry: consumer demand may be steadily evaporating, the depletion of a natural resource may be occurring or there may be the emergent substitutes because of technological innovation.

Chart of industry growth stages including declining industry phase.

BREAKING DOWN Declining Industry

An industry is said to be in decline when it does not keep pace with the rest of the country's economic growth, or when its rate of growth contracts across multiple measurement periods. Usually, the country's economic growth rate is measured by its gross domestic product (GDP). When an industry is heavily utilized within the market, it's expected that it would grow as a function of overall economic growth. However, sometimes an industry does not grow when the rest of the economy grows. This can be the result of many factors, from changing consumer preferences, technological innovation that makes the industry or its products obsolete, or the emergence of substitutes. When the growth rate of an industry stagnates or starts to shrink, for any of these reasons, it is said to be in decline.

Declining Industry Example

An example of a declining industry is the railroad industry, which has experienced decreased demand — largely due to newer and faster means of transporting goods (primarily air transport and trucking) — and has failed to remain competitive in pricing, at least in relation to the benefits of faster and more efficient transport provided by airlines and trucking services.