Which businesses hold up well in a recession?

John W. Schoen Senior producer • Profile • E-mail

With economic indicators signaling trouble ahead, Answer Desk readers are bracing for a downturn. Many, in fact, are convinced the sky has already fallen. But some readers are taking a more optimistic approach — like Sheila in Utah who is wondering which businesses do well when the economy heads south.

Can you tell me what type of business does well in a recession?
— Sheila, Layton, Utah

Though a recession describes an economy in reverse (it shrinks instead of grows) that refers to the overall level of activity across the country. Some businesses (like housing) and regions (like parts of the industrial Midwest) are already in recession. Others may feel little or no impact from the current economic downturn, which may or may not turn out to have been a recession when all the economic data are collected in a few months.

Some businesses are more vulnerable to recession than others. Carmakers, for example, often suffer badly because buying a car is usually a longer-term decision. When times get bad, people tend to put off buying a new car as long as they can.

Other businesses are said to be “recession-proof” (though few really are.) Funeral home directors and accountants, for example, can safely assume a recession won’t have much impact on death and taxes.

But the list of reliably recession-proof businesses is pretty short. Since 70 percent of the U.S. economy relies on consumer spending — and consumers typically cut back when a recession hits — there are few consistently safe shelters from the storm of a serious downturn.

One way to think about which businesses face the greatest risk is to ask: What products and services are people going to continue to buy even if there’s a recession? Health care companies generally do well because people get sick just as much in a recession (sometimes more) as they do when times are good. Even in a recession, you can't dry clean your clothes at home, and people still need to buy car insurance. 

There's more to surviving a recession just being in the right business. Some businesses don’t act quickly enough to cut prices as demand dries up. Others may find themselves too heavily in debt and unable to borrow more money to get them through the downturn. Some businesses “scale” better than others; those with high fixed costs may be more vulnerable than businesses that can survive for a time on a shoestring.

Surviving a recession as a business is not all that different than surviving as an individual. If you think you’re a possible layoff candidate, you fire up your social and professional networks and find out who might be hiring. Business owners who see a downturn coming often turn to their customers for guidance. The sooner they find out which customers plan to cut back, the sooner they can plan to make the changes they need to cope with those cuts.

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