Predicting Recovery: McKinsey’s Crystal Ball
Is there a way to predict when this recession will end? And is there a way to determine which industries might lead the way and therefore offer the best opportunities for new agency business? McKinsey analysts recently looked at spending peaks and troughs during several recessionary periods. The analysis was done on a macro level and focused on returns to shareholders and changes in EBITA (earnings before interest, taxes, and amortization) but a review of the charts showing leading and lagging indicators by industry is helpful for agencies seeking new clients.
- In the last four recessions, drops in consumer discretionary spending led the economy down. In the last three recessions, declines in IT spending also happened earlier than declines in other categories. When recoveries began, consumer discretionary spending and IT(information technology) lagged or were in line with the recovery but were not leaders.
- Drops in consumer discretionary spending and in the financial services sector have been leading indicators of the current recession. Note that the 1900 and 2001 recessions each followed a boom period in the IT industry which lagged during the subsequent recoveries. Following this logic, we should not expect spending in the financial sector to lead the upcoming recovery.
- Industries which have consistently experienced almost no effect as a result of the last two or three recessions include consumer staples and health care.
What does all of this mean for your agency? Safe harbors in most economic storms continue to be consumer staples and health care. Also, the McKinsey analysis does not address the issue of how the disruptive introduction of new technology or political situations might lead to a recovery. Many economists point to U.S. involvement in World War II as the chief influence in increased spending following the Depression. In another example, the IT industry led the way out of the 1980-1982 recovery with the advent of desktop computing as a disruptive technology. If clean energy can manage a similar disruption in the marketplace, especially when fueled with significant federal monies, the utility/industrial sector might be worth watching this time around.
[Source: Mapping Decline and Recovery Across Sectors, McKinsey Quarterly, January 2009]