Since the economic downturn in 2008, the U.S. economy has maintained steady growth yet still falls short of 2007s posted gains. However, some industries appear to be defying the odds and are growing at a faster pace than most others. Which sectors are being impacted is not the only focus of this article. Business owners interested in taking a page or two from the playbooks noted below could well see the same success as those businesses noted below.
First some backstory. In the third quarter of 2008, a global financial crisis erupted. It was caused by worldwide deregulation in the financial industry. These actions allowed banks to engage in hedge fund trading with derivatives. Hedge funds are privately-owned firms that pool investor’s money and reinvest these funds into often risky and unregulated instruments. The goal is to outperform the market and return high dividends for their clients.
The odds for the success for any high-risk venture are not great. In fact, these investments have underperformed the market since 2009. To compensate, banks turned to the same lending instrument they had used during the previous downturn in the 1980s- mortgages. It was a decision that was doomed to failure yet again. The Federal Reserve continued to raise the federal funds rate which means that the prime lending rate mortgages are based on rose as well. In response, housing prices began to fall as supply outpaced demand.
Why the Bubble Burst
Caught in the middle were homeowners and businesses who could no longer afford to make payments on their balloon, interest-only, and adjustable mortgages (many opted in as these were easier to obtain than fixed-rate loans). Worldwide, the defaulted loan rate soared. That action lowered banks’ incomes which are primarily based on the interest each receives from the number of loans they extend. As of 2007, these risky loans had grown into a $1.3 trillion industry. At the same time, these loans were creating an asset bubble, which can only burst. The banking crisis came to a head in 2007, and its trickle-down effect on Wall Street the following year.
While banks formed the epicenter of the 2008 financial meltdown, the stock market was the first to start the rally that began to bring the economy back to acceptable levels. Which sectors rallied first? Which are undergoing a renaissance today and who is poised to succeed next? It is important to know that the economy is not static. Also that it tends to run in cycles. During the recent ‘adjustment’, however, a number of industries were able to right themselves and to stay the course: Beverages, Power and Electric, Retail, Consumer Goods, Precious Metals, and Mining. As a result, the economy saw steady growth over an extended period that exceeds the normal 58-month average. Over time these industries were joined by others, which also further strengthened the economy.
Picking Up the Baton
Today, according to Sageworks, a financial information company, Information-technology and Construction firms dominate as the fastest-growing industrial sectors. Collectively, IT companies posted an average of 18% sales growth through December 31st, 2017. Compared to all industries posting gains last year, IT and Construction’s increases were almost double that of the pack. These gains speak to consumer and business needs such as housing requirements, as well as software development and testing, computer systems’ design, and IT infrastructure. As expected ancillary businesses are also thriving. For example, construction trades, supplies, and suppliers such as building finishing, foundations, exterior work, contractors who install or maintain utilities, elevators, civil engineering, dredging, and roadwork, all posted gains of 13% or more.
While the U.S. economy is not yet booming, it is at least humming along relatively smoothly. Remember, when the economy peaks, that high will be short-lived and will be followed by a trough that impacts consumer employment and spending habits. Today Construction is on top, however, it is this same industry that suffered the heaviest losses during the 2008 economic downturn. So then, what are the next great industries poised to experience growth over the next 5-10 years?
Crystal ball notwithstanding, the Bureau of Labor Statistics projects that the goods-producing sectors, manufacturing, professional and business services, state and local governments, healthcare, retail, and hospitality industries will post the highest job openings, therefore are expected to post the highest economic gains through 2025. If there is a lesson to be learned regarding the economy, it is that it rises and falls. For those in industries that have posted historical peaks and valleys, it would be prudent to save while you can, as booms never last.