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Patterns of Recovery from the Recession

Mark Marich

What do past recessions--and subsequent recoveries--tell us about how companies will recover from the current economic downturn? A new McKinsey Quarterly article sifts the historical evidence.

Researchers examined the past four recessions, and found that, contrary to popular belief, the current recession is not “unprecedented.” It is following a common historical pattern, suggesting that recovery may also proceed along these pathways. All of the previous recessions began with declines in the consumer discretionary sector, which typically also posted the largest drop in earnings. Health care and consumer staples have traditionally been the most resilient sectors. In past recessions, industry contraction occurred much more quickly than recovery.

How will we know when recovery might be in the offing? Ask your local Apple store employees. 

In past recoveries, improvements in consumer discretionary and information technology spending led the way. Another signal is the ending of the decline in total return to shareholders in these key sectors. These patterns suggest that market observers should keep a close eye on consumer spending trends and the performance of major stock market indices.

Article: “Mapping Recovery and Decline across Sectors,” by Bin Jiang, Timothy M. Koller, and Zane D. Williams (registration is required)

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