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
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
  • 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


Source link