[OPE] McKinsey Quarterly and "growth sectors" in recessions

McKinsey Quarterly has an interesting article here http://www.mckinseyquarterly.com/Corporate_Finance/Performance/Mapping_decline_and_recovery_across_sectors_2288

For a "global sample" of industries (they do not specify it further), they measured the growth rates in corporate earnings by economic sector, before interest, taxes, and amortization, during the last four recessions ('73-75, '80-82, '90, '01). (In the story, there is not a word of course about mass unemployment and millions of working lives stuffed up or ruined, that's just "collateral damage". It is the economy seen from the point of view of the extractors of the value added by labor. When unemployment is still relative modest, people care. But when unemployment gets quantitatively very big, people don't care anymore - it's accepted that it is beyond their ability to do anything about. The problem however is that there are upper limits to the rate of surplus value, which translates into a higher average unemployment level, reflected in a higher NAIRU).

Excerpts:

"The timing of contractions in sector-level sales and earnings indicates that the four most recent recessions began with a core underlying shock that then spread through the economy in a fairly predictable way. All four began with falling sales and earnings in the consumer discretionary sector [i.e. consumer durables], and three began with similar declines in the IT sector as well. By contrast, in three of the four, the energy sector was among the last to be hit. Some sectors have been fairly resistant to recessions: consumer staples wasn't affected significantly in the last three, and the last two didn't significantly affect health care. (...)

In almost every recession we studied, sectors contracted much more quickly than they recovered. Typically, it takes six to eight quarters for a sector's earnings to bottom out-fewer in 1973-75 and more in 1980-82. The time needed to get back to peak earnings levels generally is not only much longer but also highly variable. It took the better part of a decade for many sectors to recover from the recession of the early 1980s. After the recession of 2001, however, it took just over two years for most sectors to recover their peak earnings levels once they reached bottom. Some industries, such as telecommunications in 2001, never hit their peak levels again. (...)

During the 1973-75 downturn (and to a lesser extent, the 2001 one), share prices fell steeply, with many sectors suffering large losses; in 1973-75, for instance, all sectors but materials (which was down by 26 percent) lost more than a third of their value. In the 2001 recession, seven out of ten sectors lost more than 20 percent of their value. Sectors affected by "shocks" can fare even worse: IT and telecommunications each lost more than 75 percent of their value in the recession of 2001. (...)

The 1980-82 and 1990-91 recessions affected valuations less severely. Only one sector lost more than a third of its value in either downturn (energy in 1980-82 and financials in 1990-91), and most sectors suffered losses of 5 to 15 percent. The current recession seems to be following many patterns we observed in its predecessors. The consumer discretionary sector, which is sensitive to economic decline, has led in all of the past four recessions. It is also leading the current downturn, having posted the sector's largest post-2001 drop in earnings -almost 5 percent-during the second quarter of 2007, five months before the recession's official start. In 2008, total shareholder returns fell significantly in nearly every sector, with all but consumer staples losing more than 20 percent of their value, and seven losing more than a third of it. http://www.mckinseyquarterly.com/Corporate_Finance/Performance/Mapping_decline_and_recovery_across_sectors_2288

Jurriaan

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Received on Mon Jan 26 15:46:44 2009