In October 2022, Bloomberg updated its prediction on the likelihood of the US experiencing a recession. In July the forecasters at the company had given a 38% chance of a financial crisis, but just three months later this has increased to a 100% likelihood of a recession hitting the US.
There are a number of reasons why it’s become increasingly likely that the US, and much of the Western world, could soon be plunged into recession. Contributing factors include the impact of the global pandemic, Russia’s war with Ukraine, recent crashes in cryptocurrency markets, and incredibly low consumer sentiment. As a result, it looks like a financial crisis could well be on the horizon.
In September, Vendavo hosted the Growth + Profitability Summit in Denver. One of our keynote speakers, Bowtie Economist, Dr Elliot Eisenberg, spoke on GDP growth, supply chain problems, inflation, interest rates, and the likelihood of a near term recession.
Dr Eisenberg’s in-depth insights inspired us to delve into some data to see how the last recession in the US – which spanned from December 2007 to June 2009 – affected Vendavo’s key industries, to give us an idea of what the impact of a potential new recession might have on these sectors.
This included sales and value of the following industries; Gasoline, agriculture and construction, paper and paperboard, semiconductors, aircrafts, steel and iron ore, chemical and synthetics, wholesale trade, and ferroalloys.
We analyzed data from 2007 to the present day. Here’s what we found.
Gasoline Station Sales
Change After 2009 – 2010 Recession:
Gasoline sales in the US dipped to 391.23 billion US dollars in 2009, from 503.64 billion US dollars in the previous year. However, sales quickly recovered as the recession ended, rising to 448.35 billion US dollars in 2010, and continuing to rise steadily each year thereafter.
In 2021, gasoline station sales amounted to 583.5 billion US dollars, up from 428 billion dollars in the previous year. It’s likely that this jump occurred as a result of covid-19 restrictions being lifted, but it’s worth noting that this increased spend was higher than it had been before covid-19 struck.
Value of Agriculture and Construction Machinery
Change After 2009 – 2010 Recession:
The 2009-2010 recession had a significant impact on exports of US agriculture and construction machinery.
Prior to the recession, the value of exports had been rising considerably year over year, peaking at 46.6 billion US dollars in 2008. As the recession hit, sales immediately slowed, leaving 2009 sales figures at a much reduced 32.91 billion US dollars. Recovery soon followed, though.
Statistics show that while sales remained low in 2010, at 36.8 billion US dollars, they quickly rose in 2011 to 47.03 billion US dollars, topping pre-recession export sales.
The following years saw continued growth in the sector, but sales began to decline again in 2013 and have not since recovered to 2012 levels.
Whilst the value has continued to decrease over the years, the decline does not seem to be caused by economic downturn so we do not foresee the recession contributing to this any further.
Packaging, Paper, and Paperboard Production Exports
Change After 2009-2010 Recession:
The US is the second-largest producer of packaging paper and paperboard in the world, second only to China. So the impact of the 2009 recession on this sector is hugely important in determining how a recession might impact the country in the future.
In 2009, there was a significant dip in productivity, with production dipping from 45.5 to 41.6 million metric tons. The impact of the recession on this sector was short-lived, however. Productivity quickly began to recover in the following years.
When we look at exports of packaging paper and paperboard from the US, we can see little change during the difficult years of the 2009-2010 recession. Sales remained strong throughout this period, and rose gradually in the following years.
In 2018, the industry recorded its highest export value of 8.14 billion US dollars, with 9.24 million metric tons of product being exported.
Export Value of Semiconductors
Change After 2009-2010 Recession:
The production and export of semiconductors was hit hard by the 2009-2010 recession.
In 2009, exports dipped to 37.49 billion US dollars, from 50.6 billion in the previous year. But the slump did not continue for long. By 2010, sales had almost risen to pre-recession levels, back up to 47.18 billion US dollars.
Fast forward to 2020, when many industries were fighting the impact of Covid-19 restrictions, and we can see that this sector was largely unaffected. Sales in 2020 were the highest they had ever been, totalling 55.21 billion US dollars.
Aircraft Sales (Airbus and Boeing)
Change After 2009 – 2010 Recession:
Gross orders of aircraft were seriously impacted by the 2009-2010 recession. Looking at figures for Airbus and Boeing aircraft sales during this period, we can see a significant reduction for both brands.
Airbus and Boeing sales were 1,458 and 1,423 in 2007, but both had dropped by the following year. In 2008, there were 900 Airbus sales, and 669 Boeing sales. Sales continued to fall in 2009, when there were 310 Airbus sales and 263 Boeing sales.
Sales began to climb once again when the recession ended. By 2010, both Airbus and Boeing sales had started to recover.
When we look at data from the years after the recession, we can clearly see the volatility of this sector. Covid-19 was of course disastrous for the aviation industry, and as you might expect, sales were significantly reduced during this period too.
In 2020, there were just 383 Airbus sales, and 184 Boeing sales. For Boeing in particular, this year was more damaging than the 2009-2010 recession.
Although 2021 saw a 394% increase in gross orders of Boeing, and a 101% increase for Airbus, aircraft sales may suffer if hit by another recession. As shown in the last economic downturn – and during the pandemic – travel is often the first thing consumers cut back on, which subsequently trickles down to production services.
Iron and Steel Consumption
Change After 2009 – 2010 Recession:
Steel production figures in the US over the past two decades reveal insightful information on the potential effects of a new recession.
The steel industry experienced a rapid decline in productivity during the 2009-2010 recession, with production falling from 91.90 million metric tonnes in 2008 to 59.40 in 2009. Sales soon recovered though, rising to 80.50 in 2010 and 86.40 by 2011.
Iron ore prices were also significantly reduced by the recession. In 2008, iron ore prices, in US dollars per dry metric ton unit, were 155.99. By 2009, the price had fallen to 79.98. But the following year saw prices start to climb again, and by 2011 the price was back to 167.75 US dollars per dry metric ton unit.
Data on the reported consumption of iron and steel scrap in the US shows another side to this story. While this industry was also affected by the recession, the reduction in consumption was not as severe as it had been in other sectors.
In 2009, US consumption of iron and steel scrap dipped to 54 million metric tons, from 68 million metric tons in the year before. But consumption increased to 60 million metric tons by 2010, and rose again to 63 million metric tons in 2011.
Iron, steel and ferroalloys sales were hampered by the recession. In 2008, sales in this sector were strong, at 150700 million US dollars. But the impact of the recession saw sales almost halved by the following year.
In 2010, sales of iron, steel and ferroalloys gradually improved again, rising to 112,263 million US dollars. Sales continued to grow in a slow yet sustainable way over the following years, rising to 128,670 million US dollars in 2011 and 128,831 million US dollars in 2012.
Chemical, Resins and Synthetics Sales
Change After 2009 – 2010 Recession:
In 2008, sales of chemicals, resins and synthetics in the US were valued at 262,117 million US dollars. However, the recession caused a rapid decline in sales, leaving the total for 2009 at a much lower 197,564 million US dollars. But sales improved gradually thereafter, rising to 239,530 million US dollars in 2010, and 284,970 million US dollars in 2011.
In the years after the recession, sales remained strong for this sector. But it was later affected by Covid-19 and the restrictions that were introduced to limit its spread. In 2020, sales dipped to 220,729 million US dollars, but in 2021 they had strengthened significantly, rising to 307,498 million US dollars.
Wholesale Trade Sales
Change After 2009 – 2010 Recession:
In 2008, the year before the recession, US wholesale trade sales were recorded at 1,953,330 million US dollars. The sector took a significant hit during the recession, with a decline in sales to 1,658,058 million US dollars in 2009. But by 2010, sales had begun to rise once again.
In 2010, sales of 1,846,034 million US dollars were recorded. However, it wasn’t until 2011 that sales were back to pre-recession levels. In 2011, the sector enjoyed sales worth 2,091,368 million US dollars.
Wholesale trade sales remained strong throughout the US in the years following the 2009-2010 recession. While the sector saw a small reduction in sales in 2020, it fared much better than other industries during this difficult period so – despite the impact in the last financial crisis – we would not predict a huge impact during a recession based on this.
Conclusion
Our analysis shows that different industries experience recessions in a variety of ways. While some are less affected by fluctuations in prosperity, others have faced significant reductions in revenue due to poor economic states.
Industries such as gasoline sales and packaging, paper and paperboard production will likely see minimal impact from another recession. Aircraft producers, on the other hand, could face the biggest challenge. 2021 may have seen big increases in gross orders for Boeing and Airbus, but the large drop in sales in the last recession and during the pandemic suggests another plunge is looming.
Recessions tend to affect both B2B and B2C companies, yet the severity of the challenges these tough economic times bring vary considerably.
The important thing to consider is how demand might change as a result of dips in income. For non-essential sectors, demand could plummet in a short space of time. For other sectors, like the iron and steel industry, it’s unlikely that demand would be affected quite as significantly.
Recession proofing your business
Every industry is facing a potential recession head on, but it doesn’t have to be all doom and gloom if the correct steps are taken to ‘recession proof your business’ effectively.
It is a better time than ever to get your financial house in order and we recently produced an in-depth ebook on how to do this. We spoke to some of the industry’s best price evangelists, business consultants and thought leaders to weigh in on what it means to mitigate risk, future proof, and prepare your business for anything.
Act Quickly
David Anderson, VP Business Consulting
“The best way to prepare for a recession is to enable your organization to respond quickly whether the opportunity is shrinking or growing. A baseline focus on pricing agility will allow you to respond in real time, which is really the only 100% effective tool available to prepare for any weather change, be it good or bad.”
Be Honest and Transparent
Yekta Yeganah, EMEA Managing Consultant
“Be honest and transparent with your customers! They are smart and already realize their values are changing during the recession. Be your customers’ partner. Understand their value changes and work with them to find the non-negotiables.”
Go Back to the Basics
Stephan Liozu, PH.D, Pricing Evangelist and Thought Leader
“A recession is a good time to come back to the fundamentals and to focus on profitable growth. Reinforce the core, innovate, and make the investments you never had time to make. Prepare the next ten years of growth. Remember that the best defense is an offense.”