We can all agree that there hasn’t been a ton of great economic news lately in the United States, as fears of a recession (or worse) mount. And if you’ve lost your job or watched your investment portfolio fall, you might be wondering what’s next. The good news is that there are some industries and sectors that tend to do better than others in a recession.
First, let’s take a look at the state of the economy and then see where you might want to put your focus as you contemplate a job hunt or new investment opportunities.
In a word…yes. Maybe not by the “official” definition that many economists use, which is two or more consecutive quarters of a negative growth rate of gross domestic product (GDP). But that’s only because we haven’t yet endured two entire quarters of this strain.
Instead there’s another definition that encapsulates the current mood, which comes from the National Bureau of Economic Research (NBER) and covers a wider variety of economic factors. That definition of a recession is “a significant decline in economic activity spread across the economy, lasting more than a few months, normally visible in GDP, real income, employment, industrial production and wholesale-retail sales."
By that definition, it sure sounds like we entered recession territory in spring of 2020.
As mentioned, not everyone feels the pain equally in a recession, and some industries and jobs are better positioned than others to survive this unprecedented economic situation—and even thrive. It’s important to note that the 2020 recession is different from previous ones like the Great Recession of 2008 because of the nature of its abrupt onset and the shelter-in-place rules that followed the coronavirus pandemic and have wiped out traditional commerce.
Therefore, no one can precisely predict the impact on specific sectors. But there are some industries that are traditionally recession proof given their “defensive nature.” In other words, they offer more conservative products and services that people tend to seek no matter what the circumstances. Those can be good places to look for jobs and/or park your investments if you’re looking for individual stocks. Here are a few to consider.
While Americans’ wallets have been walloped, they still need consumer staples, and there have been a number of CPG companies that have flourished as consumers stock up on basics and return to the comfort of brands and products they trust. That could spell good news for large, established companies that sell products that consumers continue to buy in a downturn and pandemic, from food to cleaning products to, yes, toilet paper.
While these often fall under the umbrella of CPG, it’s likely to be a stand-out industry in its own right. Companies that make affordable luxuries tend to prosper in a downturn, given that consumers still want to feel good about themselves, even if they can’t spend the big bucks. So this sector tends to be recession resilient.
During the recession in the early 2000s, one beauty products company called it the “lipstick index,” referring to the fact that women may forgo extravagances but still want economical indulgences. Given recent innovations in this sector, self-care continues to be an important part of our regimen, expanding far past lipstick, and today, this movement encompasses all genders, providing an even bigger potential market. (And, let’s not overlook the possibility that this focus could be spurred in part by the omnipresence of social media channels and our desire to look good at all times, even if it’s just for Zoom.)
If you’re job hunting, government jobs usually provide resilient opportunities. They aren’t entirely immune, especially as municipal revenues plunge. However, statistically, these are relatively safe and the government sector encompasses a wide swath of jobs of all types and levels. In fact, almost any job that one would do in the private sector has a counterpart in the government. While salaries might not quite match up, you might find more job security pursuing your existing job in a governmental capacity.
With elective procedures on hold, some healthcare jobs may have been lost, but that should even out as governments lift those orders. Healthcare jobs are typically spared in a recession—from home health aides to physical therapists. And of course the healthcare industry can be a great place to invest, especially in sectors like life sciences that are helping develop tests, vaccines and pharmaceuticals.
Construction jobs are largely insulated, although that could change if the real estate sector continues to dip. But, other positions that should withstand most crises are those related to necessary infrastructure-related functions, such as plumbers and electricians.
Computer- and technology-related jobs are likely to hold steady. Look for jobs in areas that support vital business activity, such as a computer support specialist, programmer or information security analyst, and investments that provide necessary hardware and software.
You may initially scoff, but while brick-and-mortar stores, particularly in malls, have been decimated, there are other areas that are thriving. Grocery stores have seen an uptick in jobs and sales, as have big-box stores. In a recession, discount outlets and DIY-focused stores should continue to do well as thrifty consumers reel in their spending. And large e-commerce players that sell basic goods and at-home products are doing particularly well.
Fur babies rarely get short shrift, even if consumers are economizing in other areas. That means in addition to affection, they are likely to continue getting lavished with treats, toys, top-notch medical care, even gourmet food.
The most important thing to remember about markets is that they have always recovered, despite the severity of past downturns. That’s why it’s vital to take a long-term view, rather than dwell on today’s stomach-churning ups and downs.
In addition, you want to avoid locking in losses by selling when your portfolio is at a low point. By maintaining your investment discipline, you can allow yourself to be in a position to profit from a market rebound. After all, market drops represent the “buy low” part of the tried-and-true “buy low, sell high” investment ideal.
It’s always wise to maintain a diversified portfolio, by making investments in different asset classes, and that is especially great advice in an uncertain market. Investing in mutual funds and exchange-traded funds (ETFs) is one way to gain access to a broad array of investment products. (For example, Acorns portfolios include a mix of ETFs offering exposure to thousands of stocks and bonds.)
While we can all look forward to emerging on the other side, there is likely to be additional short-term pain attached to this recession, so bolstering your emergency savings is a wise step right now.
Take a look at your budget over the past few weeks to identify areas where you’ve experienced unexpected savings, such as commuting expenses, clothing, personal services and almost certainly travel and entertainment. If your situation allows, take those savings and sock them away into a high-yield savings account to help protect your finances in case of a job loss. Or, if you already have adequate savings, consider investing that money.
The best way to navigate these tough times is to focus on the bright spots you can find today. Identify ways to maximize opportunities that align with your own personal circumstances, time horizon and financial goals and set yourself up for success as we eventually emerge from this tunnel.
This material has been presented for informational and educational purposes only. The views expressed in the articles above are generalized and may not be appropriate for all investors. The information contained in this article should not be construed as, and may not be used in connection with, an offer to sell, or a solicitation of an offer to buy or hold, an interest in any security or investment product. There is no guarantee that past performance will recur or result in a positive outcome. Carefully consider your financial situation, including investment objective, time horizon, risk tolerance, and fees prior to making any investment decisions. No level of diversification or asset allocation can ensure profits or guarantee against losses. Article contributors are not affiliated with Acorns Advisers, LLC. and do not provide investment advice to Acorns’ clients. Acorns is not engaged in rendering tax, legal or accounting advice. Please consult a qualified professional for this type of service.