Which Business Sectors Will Recover First?

According to McKinsey research, the current recession seems to be following many patterns observed in earlier recessions. The consumer discretionary sector led in all of the past four recessions, including the current downturn, posting a drop in EBITA of almost 5 percent during the second quarter of 2007.  

"In 2008, Total Return to Shareholders (TRS) fell significantly in nearly every sector, with all but consumer staples losing more than 20 percent of their value and seven losing more than a third of it," cites the authors. Given the historical patterns, revenues and EBITA can be expected to fall in most other sectors as the recession continues. "These similarities give executives some idea of what to expect as they plan their next steps," the research concludes.

History also points to early indicators of a recovery. "In three of the four most recent recessions, higher consumer discretionary and IT spending led the way. When real EBITA growth resumes in these sectors, it may be a useful indication that the economy is turning around. Also, TRS generally stops declining near the end of a recession, so resumed growth in broad stock market indices might also herald the end of the current one" cites the report. 

According to McKinsey research, the current recession seems to be following many patterns observed in earlier recessions. The consumer discretionary sector led in all of the past four recessions, including the current downturn, posting a drop in EBITA of almost 5 percent during the second quarter of 2007.  

"In 2008, Total Return to Shareholders (TRS) fell significantly in nearly every sector, with all but consumer staples losing more than 20 percent of their value and seven losing more than a third of it," cites the authors. Given the historical patterns, revenues and EBITA can be expected to fall in most other sectors as the recession continues. "These similarities give executives some idea of what to expect as they plan their next steps," the research concludes.

History also points to early indicators of a recovery. "In three of the four most recent recessions, higher consumer discretionary and IT spending led the way. When real EBITA growth resumes in these sectors, it may be a useful indication that the economy is turning around. Also, TRS generally stops declining near the end of a recession, so resumed growth in broad stock market indices might also herald the end of the current one" cites the report. 

Leave a reply