Ten Industries Set for the Strongest Growth Through 2011

Merrill Lynch investment banking
Merrill Lynch investment banking

How's this for gaming the system? The U.S. investment banking industry, which contributed mightily to the country's worst recession in 80 years, will also be the industry that enjoys the strongest sustained growth coming out of the recession, according to data from market research firm IBISWorld.

IBISWorld forecasts that the Investment Banking and Securities Dealing industrywill grow at an average growth rate of 103% over 2010 and 2011, which far outpaces any other category. Anticipating that most industries would be experiencing significant growth rates in 2010 just because they're likely to recover the ground lost during 2008 and 2009, IBISWorld decided to factor in the average growth rate over the next two years "to weed out a lot of the industries that were simply rebounding from their lows."

IBISWorld senior analyst Toon van Beeck says the company's Industry Turnover Forecast lists the 10 industries that will experience the strongest annualized growth over 2010 and 2011 (see table). These industries will outperform primarily due to returning global demand and increasing prices of commodities such as oil and metals.

Car and automobile manufacturing follows in the second spot after investment banking (albeit way behind). Van Beeck points out that those two industries were perhaps the most decimated by the downturn.

Investment banking "almost died," van Beeck says. "While we do see very strong growth, the size of the industry is certainly nowhere near where it was prior to the recession. It was a $173 billion industry in 2007, and in 2009 it dropped to about $10 billion -- so we shaved off pretty much the entire industry."

While the initial growth in investment banking will come because it's returning from such a low base, the expansion in 2011 will be based on companies with strengthened balance sheets looking for opportunities. He expects that more credit availability and an improved climate for mergers and acquisitions and initial public offerings will propel growth in investment banking, which will then be sustained by investors' willingness to invest in deals that spring from the increased activity.

Here's an overview of the other industries on the list:

Car and Automobile Manufacturing will grow an average of 32.5% over the next two years, largely due to pent-up demand. After their own near-death experiences, General Motors and Chrysler have emerged from bankruptcy restructured and itching to compete. Car companies overall have found ways to be innovative to improve quality and attract customers. IBISWorld projects new-car sales will increase by 9.2% in 2010.

"A lot of this growth will be simply driven by companies that are offering incentives," says van Beeck. "They are really trying to build sales, so they're offering incentives, heavy discounts and free maintenance. These kinds of things are really going to build this industry going forward."

Commodity Dealing and Brokerage will increase by an average rate of 30.5%. The increasing price of oil, precious metals like gold and copper, and resources such as corn and wheat will key the rebound in this area of the financial services industry. Trading futures contracts of commodities is increasing, and at $3 to $10 per trade, the fees brokerage firms earn add up quickly.

Iron Ore Mining will increase by an average rate of 27.2%, largely due to the increasing global demand for steel by manufacturing concerns. "We're seeing a much stronger iron ore market, particularly with a shift to quarterly pricing that's going to really alter the iron ore prices and steel prices in the short and long term," says van Beeck. "The quarterly pricing method will see a lot higher prices, and that's going to really affect profits in a positive way."

Aluminum Manufacturing will grow by an average of 19.6% largely because of increasing production in the housing and car markets in 2010 and 2011, and increased global demand for aluminum packaging materials.

Four of the last five industries on the list are related to oil, and will all get a boost because of the increasing price of crude. IBISWorld is forecasting a 53% jump in the price of oil for 2010, which will translate into revenue growth for oil drilling, petroleum refining and gasoline distribution industries.

The Recreational Vehicle Dealers industry is perhaps the biggest surprise. Projected to grow at an average rate of 17.2% over two years, IBISWorld expects it to benefit from the improved credit availability that allows baby boomers to buy recreational vehicles for holiday travel. RV sales had dropped off a cliff after many boomers' savings were wiped out the market meltdown that began in 2008. But van Beeck says "recovering equities markets. . . will help their balance sheets and their ability to purchase RVs."