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Industries Negatively Affected by an Economic Recovery

06 Jun

What is an economic recovery?

An economic recovery is a period of increasing business activity signaling the end of a recession. Much  like a recession, an economic recovery is not always easy to recognize until at  least several months after it has begun. Economists use a variety of indicators,  including GDP, inflation, financial markets and unemployment to analyze the  state of the economy and determine whether a recovery is in progress.

The general thinking is that recessions are bad for business. However, some  of businessess 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. The following 5 industries fall into this category.

1. Discount Stores:

These are department stores which offers its items at a lower price than many other retail stores. Economic downturns necessitate  belt-tightening on the part of consumers. In a falling economy, high-end  fashion, automobiles, and homes see a plummet in demand as individuals  focus on all but the most core necessities. Discount stores, like Mr.Price, tend to see a corresponding boost in  demand during these downturns and 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. When the economy recover consumers will go to high-end stores and most expensive cars etc.

2. Education

Job losses during recessions leave those  unfortunate enough to be handed a job termination lettesr 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. In Tanzania this could apply more to colleges that offers cheap short courses; for high fee institutions ca not be affordable for a person that looses a job.

3. Grocery Stores

In similar fashion to the alcohol-related  firms, consumers tend to eat at home more often in a down economy. The recession crisis saw the restaurant industry suffer mightily as a result of this  phenomenon.  This trend  favored food retailers. In an economic recovery, their growth tends to  slow because of less traffic in the grocery aisles.

4.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 money 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.  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.

5. 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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Posted by on June 6, 2012 in Uncategorized

 

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