Industries Impacted by predicted Recession

Which Industries Will Be Most Affected by the Predicted Recession?

Economists put the odds of a recession at 64 percent due to steady interest-rate hikes and recent bank failures. Layoffs climbed 396 percent over the same quarter a year earlier in the first quarter of 2023. The tech industry laid off the most workers, but e-commerce, media, and Wall Street were also impacted. Some businesses and industries have historically thrived and even grown during recessionary times. What can we expect to see in the second half of 2023?

Industries with the most significant risk of job losses

The Conference Board Job Loss Risk Index uses several indicators—exposure to labor shortages, sensitivity to monetary policy, job function and education, pandemic recovery, labor demand gauge, and age competition and experience—influencing job losses and driving differences across sectors. The index estimates that the following industries may be at the most significant risk of lost jobs.

  1. Information services: 650+ tech companies have laid off more technology workers this year than in 2022. These companies include Amazon, Google, Meta, and Roku. The following factors combine to create a high risk of job loss for information technology employees:
    • Pandemic overhiring readjustment: Due to the use of technologies like remote work, e-commerce, and distance learning—employment in the sector increased significantly during the pandemic causing a tech boom. Employees hired included experienced engineers and developers with six-figure salaries. In the fall of 2020, the number of employees grew at Amazon (93 percent), Meta (92 percent), and Microsoft (53 percent). As the vaccine became readily available and workers returned to the office, the tech industry had more employees than needed. The median level of experience of laid-off tech workers is 5 years, indicating organizations laid off their higher-paid, more tenured tech employees to meet financial targets.
    • High inflation and interest rates: When the Federal Reserve started raising interest rates to control inflation, it increased borrowing costs for highly leveraged companies, negatively impacting their profitability and cash flows, leading to lower valuations and companies laying off employees.
  1. Transportation and warehousing: The pandemic forced the closure of many physical stores, leading consumers to rely more heavily on online shopping to purchase the needed products. During the first year of the pandemic, e-commerce sales increased by 43 percent due to consumers looking for ways to reduce their exposure to the virus and the high degree of convenience provided by e-commerce, allowing consumers to shop from the comfort of their homes and have products delivered directly to their doorstep. E-commerce companies invested heavily in delivery infrastructure and logistics, making it easier and more affordable for consumers to receive products quickly and reliably.

Since stores started re-opening, the industry is at higher risk of job loss due to the following reasons:

    • Consumers prefer a local presence: The e-commerce growth rate of total retail fell in 2021 and 2022 after the initial pandemic spike. Globally, 47 percent of consumers are significantly more likely to purchase from brands that have a local presence.
    • Brick-and-mortar shopping is rebounding, and new store openings outpace store closures. From September 2021 to 2022, U.S. store closures decreased 55 percent year-on-year. This has resulted in less need for transportation and warehouse workers and layoffs.
  1. Construction is typically one of the most affected sectors during a recession. There are several reasons why this industry has a greater risk of job loss:
    • Decreased demand for new construction projects is common during a recession. Consumers may delay home purchases or postpone renovations, while businesses may wait on new construction projects or expansions. This demand reduction can lead to decreased construction activity and a slowdown in the construction industry.
    • Tightening credit conditions make it more difficult for construction companies to secure financing for new projects causing a decrease in the number of new construction projects and a slowdown in construction activity.
    • Reduced government spending: In some cases, governments may reduce spending on infrastructure and other public construction projects during a recession leading to decreased demand for construction services and a slowdown in the industry.
    • Increased competition: The number of construction companies in operation may decrease as some firms go out of business, causing increased competition for a smaller pool of construction projects and putting downward pressure on prices and profit margins.

Industries with less risk of layoffs

While no industry is immune to job cuts, specific industries historically have had lower layoff rates. Here are the three industries The Conference Board Job Loss Risk Index predicts having less risk of job losses:

  1. Healthcare and social assistance: Healthcare and social assistance jobs are more secure than other industries during a recession. People will continue to get sick, injured, and require medical attention even during a recession, so these jobs are considered essential services that people need regardless of the state of the economy. Irrespective of economic conditions, the aging population is increasing, leading to an increased demand for healthcare services in the coming years. Governments tend to increase spending on healthcare during a recession as a way of stimulating the economy. This increased spending can offset any potential decline in private spending. Lastly, many people have health insurance that covers the cost of medical care, providing a safety net for people during a recession when they may have less disposable income.
  2. Accommodation and food services: Although typically not a recession-resistant industry—because it’s dependent on consumer discretionary spending—the accommodation and food services sector is expected to have limited layoffs. The pandemic caused major shutdowns that disproportionately affected in-person services. At the start, accommodations and food services accounted for almost one-third of the 8.2 million job losses. Despite steady gains, this sector is still 2.4 percent below the February 2020 level, with full-service restaurant employment lagging by 4 percent. The current labor shortage lowers the risk of job losses even more.
  3. Retail trade: Despite an economic downturn, people still need to eat and cut back on dining out and ordering takeout to save money—causing grocery store sales to increase. During the 2008 recession, discount stores—like Dollar Tree, Dollar General, Family Dollar, and Walmart grew—along with thrift and consignment store sales increased. To save money, homeowners typically repair what they own rather than buy new to save money—increasing home improvement store sales.

Summary

Recessions are part of every economic cycle—since the Great Depression in the early 1930s, the U.S. has had 14 recessions—but they impact different industries and sectors uniquely. There are reasons to be optimistic—the U.S. is experiencing a record-low unemployment rate with solid job gains above pre-pandemic levels. However, businesses are experiencing declining profits, and consumers have cut back on spending, pointing toward a recession.