15 industries that would benefit from a recession

Up in a Downturn

As the stock market tumbles, businesses halt operations, venues cancel events, and consumers tighten their belts on all spending that doesn’t involve hoarding toilet paper, it’s hard to go a day without hearing a news report about the coronavirus and a pending recession. While that would be bad news for most, some industries have built-in mechanisms that allow them to survive — and even thrive — when economic storm clouds gather. Whether it’s about finding businesses to invest in or industries it’s safe to work in, these are worth a look.

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Health Care

 

Our current economic downturn is about a health emergency, but the health care industry doesn’t tend to rattled by any kind of downturn. “Given our aging population and the high cost of health care in general, this sector is typically resilient to recessions and may actually see rising sales and profits,” said Caleb Silver, editor-in-chief of Investopedia. “Pharmaceutical products and medical services are nondiscretionary for most people who rely on prescription drugs and medical care for their health.”

Related:15 Countries Where Americans Can Save Big on Medical Care

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Consumer Staples

Unlike clothing, entertainment, and other discretionary purchases, consumer staples are basic needs essential for everyday use and tend to perform better as a sector during downturns. “These include household goods, food, beverages, hygiene products, and other items that individuals are either unwilling or unable to eliminate from their budgets — even in times of financial trouble,” Silver says.

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Discount Retailers

When budgets are tight, people go to stores that help them stretch their dollars, even if they don’t tend to shop there during times of plenty, often for household necessities. “Discount retailers also tend to benefit during economic slowdowns, given their ability to offer most consumer staple products at low costs to entice bargain hunters,” Silver says.

Related:28 Surprisingly Good Costco, Walmart, and Target Products

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1. Contribute more to a retirement account

If you put money into a traditional IRA or 401(k) plan, you'll benefit in two ways. First, you'll get the financial security that comes with having savings available in retirement, and the earlier in life you start contributing, the more opportunity you'll give your money to grow. But you'll also benefit from a tax perspective, because the amount you contribute will go in pre-tax. What this means is that if you make $50,000 a year but put $5,000 into your 401(k), you'll only pay taxes on $45,000 of income. Talk about a win-win!

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2. Donate items you no longer use

Is your basement or hall closet overflowing with clothing, tools, and gadgets you don't need? If you donate those items to a registered charity, you'll get to claim a deduction on your taxes. All you need to do is obtain an itemized receipt of what you give away to verify your donation, and you're all set.

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3. Open a flexible spending account

Medical care can be a huge expense for some families. Americans spent an estimated $416 billion on out-of-pocket medical expenses in 2014, and that number is expected to climb to $608 billion by 2019. But if you sign up for a healthcare flexible spending account (FSA), you'll get to pay for eligible medical expenses, like copays and prescription drugs, with pre-tax dollars. For 2016, you can allocate up to $2,550 to an FSA, which means that if your effective tax rate is 25%, you'll save $637 by contributing the maximum. But don't make the mistake of overfunding your FSA. The money you contribute goes in on a use-it-or-lose-it basis, so if you put in the full $2,550 but only rack up $2,000 in eligible expenses, you'll have to kiss that remaining $550 goodbye.

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4. Use pre-tax dollars to pay for child care

Childcare is one of the greatest expenses families with young children face. The average American household currently spends $10,192 a year on full-time day care center care, $7,700 a year on regular after-school babysitting, and $28,900 on a full-time nanny. The good news, however, is that you can shave a fair amount of money off your tax bill by opening a dependent care FSA. Similar to a healthcare FSA, a dependent care FSA allows you to allocate pre-tax dollars to pay for eligible child care expenses, which include preschool and summer camp. For 2016, a couple filing a joint tax return can contribute up to $5,000 a year in pre-tax dollars. If you max out that limit and your effective tax rate is 25%, you'll save $1,250 in taxes. The only catch is that like a healthcare FSA, if you end up spending less during the year on eligible expenses than what you put in, you'll forfeit your remaining balance.

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5. Sign up for commuter benefits

Traffic and rail delays can be a huge source of daily aggravation. But if your commute can't serve the purpose of helping you relax and ease in and out of your workday, it can at least help you lower your taxes. All you need to do is sign up for commuter benefits through your employer, and you'll get to use pre-tax dollars to pay for the costs you already incur. For 2016, you can allocate up to $255 per month in pre-tax dollars for transit and up to $255 a month for parking for a combined total of $510. If you hit that maximum and your effective tax rate is 25%, you'll save $1,530 a year on your taxes.

Nobody likes paying taxes, and there's certainly no reason to pay more than you have to. With a few smart moves, you can lower the amount you ultimately fork over to the IRS and keep more money in your pocket.

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Utilities

Just like consumer staples, people have to keep utilities such as electricity in their budgets, even during the leanest of times. But that’s not the only reason the sector tends to perform well in troubled times. “Utilities are generally considered defensive stocks given their necessity and their recurring revenue models,” Silver said. “While their growth is more muted than other sectors of the market, they are slow and steady earners no matter the economic environment. They also offer relatively high dividends to investors looking for yield in good times and bad.”

Related:Which States Pay the Most for Electricity?

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Service and Repair Companies

Many service-based industries suffer during downturns, Silver’s Investopedia points out, including restaurants and maid services, because people tend to cut those luxuries out fairly early during a belt-tightening. Others, however, wind up doing better when the economy is down. They include service and repair companies, because budget-minded households and businesses will pay to fix the things they can instead of spending more to buy a new one.

Related:DIY Disasters: 20 Repairs to Leave to the Pros

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Sin Industries

So-called sin industries tend to thrive in recessions, Investopedia reports, because down-and-out consumers will spend a little more money to dull the pain of not having a lot of money to buy things they really want. This includes cigarettes, booze, and even chocolate. (Oddly, gambling tends to decline during recessions.)

Related:Renounce and Save: How Much You Save Giving Up These 20 Things

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Fast Food

Americans have become much more concerned with eating healthy in recent years, but that concern runs only the length of their checking accounts. Fast food is cheap, filling, and laden with calories. According to Seeking Alpha, fast-food restaurants have performed well in times of economic worry, as people will often feed themselves and their families cheap burgers, nuggets, and fries when they have to, even if they don’t want to.

Related:How Fast Food Meals Are Less Healthy Today Than 30 Years Ago

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Retail Consignment

Businesses that sell used clothing and other goods tend to do well in down markets, for obvious reasons. Recessions don’t allow people to trim consumer staple spending, but they force cuts in discretionary spending such as for clothing, shoes, and toys. Even in tough times, however, people want clothes and toys of all sorts — even if they’re not new. When people are forced to sacrifice the things they want for the things they need, thrift stores thrive.

Related:Buy These 24 Things Secondhand to Save Big

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Home Renovation Businesses

There’s an adage in real estate: Renovators hire as builders fire. In strong economies, people tend to buy new homes, so home builders thrive in those markets. In times of recession, however, people tend to fix up the houses they already own or can afford — a boon for renovation companies and stores that sell home remodeling supplies.

Related:19 Home Improvement and Decor Trends for 2020

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Staffing Firms

Temp agencies are reliable indicators of looming recession because contingent workers are often the first to be fired when a downturn begins, according to staffing firm consulting group Advance Partners. Temp agencies are also an indicator of when a recession is fading because companies tend to turn to contingent workers first as they begin to dip their toes back into rehiring and expanding. So staffing firms are not recession-proof — but they historically start suffering last and recovering first.

Related:Can Employment Agencies Actually Help New Grads Land a Job?

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Collection Agencies

A sad fact of recessions: More people won’t be able to keep up with monthly payments, and they’ll go into default on their accounts. When that happens, lenders hire collection agencies to recover what they can or, when they finally write the borrower off as a loss, sell the account to debt collectors altogether.

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Trash Services

Like death and taxes, accumulated garbage is an inevitability, and it must be hauled away, recession or no recession. That, along with the fact that many trash-services companies pay hefty shareholder dividends, makes trash services a historically steady bet, even in times of economic chaos. In fact, some of the top trash-services stocks outperformed the market dramatically during the past recession in 2008.

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Pawn Shops

Pawnbrokers have the wind at their backs during economic downturns. That’s because when recession strikes, those hit the hardest often resort to selling their stuff and to seeking out unconventional short-term loans. Pawnbrokers buy collectibles and issue cash loans based on physical collateral, which means they clean up on both ends during desperate times.

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Repossession Agencies

Recessions put people under economic strain, which leads to increases in loan defaults — including car financing loans. This, naturally, is a boon for the repo man — but only temporarily in the worst cases. In 2008, for example, there was initially a massive uptick in repossessions, but as the recession dragged on, the economy bottomed out, there were no more cars to repossess, and all but the highest-credit buyers weren’t getting loans to buy new cars, which led to a late-recession slump for the repo industry.

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Static Industries

Although they don’t necessarily improve during downturns, you can usually count on so-called static industries to chug along normally and not get swept out with the tide of a recession. Health care is technically static because people get sick no matter the whims of the market. Tax prep and accounting firms count, too, because the taxman cometh for people and business no matter what. Grave-digging and funeral services are static industries; death pauses for no economic indicator.

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