Which jobs are most affected by a crisis? And which ones thrive?

We are now in the middle of a booming economy in the US, along with the longest Bull Run in the stock market in history, a confirmation of the good times. Unemployment is historically low, wages are rising, and workers are earning more. All is good.

However, history shows no boom lasts forever. Economy moves in cycles, as shows the figure below from Minneapolis Fed. While we can’t say for sure when they will happen, we know that recessions are inevitable. And they are more likely to happen the longer an expansion lasts, so be careful.

No need for drama, though, as such a long bull market is simply the result of economy recovery after a very deep dip in 2008. Legendary hedge fund manager Ray Dalio warns that we may be heading for a sizeable slump that may cause the dollar to slip, but it will not be the end of the world.

However, be cautious

That doesn’t mean we can all be naïve. Remember 2008? Many people who acquired expensive real estate and were essentially living month-to-month were caught off guard and endured turmoil. Lost homes, personal bankruptcy and the likes can be devastating to your health.

Not only that, there are countries elsewhere on the globe experiencing a recession right now, notably in South America, like Brazil and Argentina. Those are countries that experienced significant economic expansion and low unemployment for years, but ended up in severe recession (also because of internal problems).

So start making preparations as soon as possible. Here are some practical steps that you can take:

  • Avoid debt, especially for consumption. Have some money available for a rainy day and diversify a little of it in assets that tend to keep their value when the dollar slips, like gold or strong foreign currencies (again, remember 2008).
  • Avoid buying stocks or real estate at inflated prices. While they may continue to go north, if they don’t, a downward spiral can be devastating to your finances.
  • Adjust your career or business foreseeing a downturn. Keep expenses low and make calculations to survive a severe slump in business.
  • Remember that, in a recession, assets lose value, the currency is likely to depreciate (remember how the dollar behaved in 2008 and subsequent years against other currencies?). Don’t be fooled by the initial upwards movement. However, keeping money in the bank can be an opportunity to buy depreciated assets.
  • However, remember that you will probably have less income. As economy slows down, money changes hands less often and everybody ends up earning less. In business, it is not rare to see a 10%-plus slump, and 20-30% slumps are fairly common across many industries. If you are an employee, losing your job is something that can happen, especially if you work in an industry more prone to suffer a recession downturn. Consider learning a new activity in an expanding industry while you have an income.

Which industries tend to suffer the most?

As said earlier, one effect that a recession has on the market is that less money changes hands, effectively putting a cap on business revenues. While some businesses can actually thrive during a slump, we can be sure that most will suffer.

However, not all businesses that lose momentum are affected equally. Basic industries that supply what people need on a daily basis, like food (but not including fancy restaurants), fuel and transportation tend to suffer less, as people will do what they can to continue eating and working.

Luxury industries, by their turn, tend to suffer more. When both people and businesses notice their incomes falling, they tend to cut superfluous expenditures and postpone the purchase of their “dreams”, like a new house, a better car, a beautiful jewelry piece and so on. So, those are the industries that tend to experience a sudden and sharper impact. The same happens to investment industries. People who lose revenue tend to postpone larger investments and focus primarily on keeping what they’ve already got.

Construction industry is specially affected. Houses are both somewhat luxury and investment as well. People losing their income postpone both. That’s why we usually see a severe slump on the industry in every country that goes in a recession.

Which industries thrive?

Not everyone one suffers during a recession. Some industries actually thrive. As people lose income and switch to cheaper habits, those industries that offer lower cost services tend to thrive. Low cost restaurants, used car dealers, auto parts dealers and mechanics, recruitment agencies and other businesses are some that usually experience an increase on revenue. Some are even non-intuitive.

Technology-focused industries also tend to do well. Technology is, in essence, replacing older, archaic and more expensive methods with new, cheaper and more efficient ones. In a recession, when most businesses and people are focusing on cutting costs, the process tends to accelerate.

Benjamin Hasselmann is a Brazilian economist, and is witnessing firsthand the effects of a severe slump

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