WASHINGTON - With the global economy at risk of a deep recession, many battered areas of the economy stand to suffer more damage in coming months. Other industries, though, seem poised to withstand even a severe downturn.
The health care sector should hold up especially well even in a recession, along with defense and a few other industries. Still, analysts say a unique collision of economic and political challenges means many businesses might not be as well-insulated as they were in past recessions. Here’s a look at major industries that, if not exactly recession-proof, seem best able to endure the downturn:
Health care
With an aging population and the largest health care spending in the world, the nation’s medical sector could fare perhaps best of all. During economic downturns, sales of prescription drugs and medical devices tend to hold up better than nonessential goods, noted David Wyss, chief economist of Standard and Poor’s.
“Generally, you’re looking for things that are necessities, not luxuries,” Wyss said. “People get sick and need medical care regardless of the state of the economy.”
But recent earnings show that drug makers aren’t immune from slumping sales that have plagued their peers in the retail and auto industries. Pfizer said last month that U.S. sales of its best-selling product, the cholesterol drug Lipitor, fell 13 percent in the last quarter as some financially struggling patients stopped filling their prescriptions.
“The typical safe harbors (for investors) have been pharmaceuticals,” said analyst Steve Brozak of WBB Securities. “They’re no longer safe; they’re now the least bad choice.”
Pfizer and Schering-Plough Corp. were able to offset weak revenue in the U.S. with higher sales abroad. But other companies, such as Merck & Co. Inc., have been less successful. Merck said recently it will cut 7,200 jobs after reporting sales declines.
Experts say pharmaceuticals are more vulnerable to economic cycles because employers have shifted more of the financial burden for care to patients, with higher copays and deductibles.
“With consumers having more cost-sharing in their benefits, you’re going to see a greater effect on their health care spending right away,” said Paul Ginsburg, president of the nonprofit Center for Studying Health System Change.
Health care companies least affected are those that sell inexpensive medical products directly to hospitals, bypassing cash-strapped consumers.
A focus on lifesaving medicine is also expected to reward makers of high-priced biotechnology drugs.
Defense
With the government spending hundreds of billions of dollars to fight wars in Iraq and Afghanistan, most big defense-related companies should also be able to withstand recessionary pressures.
Military spending has soared about 40 percent during the Bush administration, pushing up the stocks of General Dynamics Corp. and its competitors. The company’s chief executive, Nicholas Chabraja, has pointed to General Dynamic’s backlog of orders - totaling $60.5 billion at the end of the quarter - as a sign of the company’s long-term strength.
Rivals such as Northrop Grumman Corp. and Lockheed Martin Corp. also have contracts that stretch decades into the future, as well as large cash reserves.
Analysts caution, though, that long-term problems loom for the sector. Both presidential candidates have called for reforms on how defense contracts are awarded, and many analysts see the government’s $700 billion bailout plan as a crimp on future spending.
It seems “nearly impossible” that future military budgets “will remain unscathed by the current fiscal reality,” Ronald Epstein, a Merrill Lynch analyst, wrote in a recent note.
JSA Research analyst Paul Nisbet said that even a partial withdrawal from Iraq would hurt ammunition manufacturers. Democratic candidate Barack Obama has also expressed skepticism about the level of spending on missile defense.
Food and consumer staples
While health insurers and defense contractors are subject to policy changes in Washington, other sectors are more stable. Food companies such as Kraft Foods Inc. and Kellogg Co. tend to perform fairly consistently, even during tough times, which is why their stocks are holding up well, analysts say.
General Mills, maker of Cheerios and Pillsbury products, is one of the best-performing stocks in the S&P 500. Its strong brands have helped it outperform competitors for years.
As consumers begin eating at home more often, they are boosting sales at chains that can deliver groceries at the lowest price, often at the expense of more high-end companies.
At the same time, chains such as Costco Wholesale Corp. and Kroger Co. have reported rising earnings as shoppers trade down to lower-budget store brands.
Tobacco and alcohol
Beer and cigarettes don’t seem as indispensable as food and medicine, but demand for tobacco and alcohol tends to remain strong in tough economic times.
Last month, Philip Morris International Inc. and Reynolds American Inc. reported results that topped Wall Street expectations. Executives said steady sales show consumers remain loyal to tobacco products even as they cut back on other expenses.
The beer industry has proved nearly as elastic. Its sales to retailers have risen about half a percent for the year, according to trade publication Beer Marketer’s Insights. Though that’s down from last year’s 1.4 percent growth rate, analysts say the business is still performing relatively well.
“Vices tend to be a good place to seek shelter because people pretty much support their vices - at least the cheaper ones,” said S&P’s Wynn.
AP Business Writers Stephen Manning in Washington, Emily Fredix in Milwaukee and Vinnee Tong in New York contributed to this report.




