5 Types of Businesses Most Affected By a Recession and How This May Impact Your Wallet
Written by
J. Arky
Edited by
Rebekah Evans
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Economic downturns affect everyone-from the individual consumer to large corporations. The ripples of a recession can have a big impact all over the world, with certain industries really bearing the brunt of the financial hit. For months, Americans have feared that a recession was just around the corner and about to take a toll on their wallets. While this disastrous prediction has yet to come to fruition, it can be helpful to know what businesses might find themselves in dire straits so you can prepare yourself accordingly.
“Living through the Great Recession, you really see how a serious downturn affects nearly every business in some way,” said Joe Camberato, CEO of National Business Capital who highlighted that everyone buckles down on what are essentials to spend money on and what can be seen as an unnecessary purchase. “And this belt-tightening trickles into industries that aren’t essential, affecting businesses across the board. It’s a chain reaction that eventually touches almost everyone.”
Here are five types of business most affected by a recession and how this may impact your wallet.
Retail
“During a recession, customers tend to spend significantly less than before as they only purchase necessities,” said Steven Templeton, CEO of PracticePro 365, with over 45 years of experience in business consulting, valuation and tax strategies.
“Sales in retail industries that are nonessential for instance, such as luxury goods and apparel are decreasing for retailers,” he explained. “Which in turn means that there will be less discounts and promotions for the consumers, more joblessness in that sector and less new products in the market.”
Construction and Real Estate
Housing demand often decreases as buyers are placed in a tighter credit environment and fear for their jobs, according to Templeton.
“For homeowners, this results in falling home prices and trouble in selling the home,” he said. “Renters will however probably be hit by escalated rents as there will be less purchasers of the houses thus increasing the demand for the rental market.”
Automotive
Templeton stated that sales of cars tend to significantly decrease because most of the purchases are deferred in times of uncertainties.
“Even parts suppliers of automakers, dealerships and this would hurt as well,” he explained. “Hence, this could imply less new car incentive for the consumer and higher used car price as a result of acute scarcity.”
Travel and Hospitality
“An unequivocal understanding is that holidaying and taking business trips are the first non-fixed expenditures that come in the firing line in case of a recession,” Templeton said. This leads to layoffs and cut in services offered because there is low demand for playing in the airport, accommodation and entertainment places.”
The flip side is that many tourists might enjoy the unintended benefits of this fall out with cheaper prices in the short term. That said, Templeton said there will be recessionary effects such as high charges and limited service choices that last longer than most travelers would like.
Manufacturing
“There is a downturn in everything that is manufactured since there is less consumer demand. Such slow advancement is detrimental to both the local and international supply chain,” Templeton said.
“Therefore, workers do not feel as secure in their jobs and the prices of basic goods are likely to increase because of the high costs of production or scarcity of the goods,” he added.
Impact on American Consumers
Camberato summed up how recessions and the industries affected by them trickle down to consumers: everyday spending tightens.
As for the average person, Templeton said a “recession is about the shrinking of budgets, the raising of unemployment figures and not so frequently good prospects concerning the increase of wages.”
“It usually starts with luxury items and services that people can live without. Instead of going to the salon every month, people stretch it out to every few months,” Camberato added.
“Retail suffers because fewer people are out shopping or traveling,” he said. “Real estate takes a hit, which then affects home renovations and the contractors who rely on that work. Travel and vacations start to shrink-people cut back from multiple trips a year to just one, or skip vacations altogether.”
Templeton said, “Almost all kinds of trades raise their prices because of similar reasons and because they can. Thus, customers receive less for more.”
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