Upon analysis of the average percent change in GDP added by industry (Exhibit 1), “Food and Beverage Stores (Retail trade sector)” and “Data processing, internet publishing, and other information services (Information sector)” appeared to be the subindustries that have been least affected by the COVID-19 pandemic and current economic conditions occurring within the United States and around the globe. There are many reasons for these two sectors outperforming others, such as whether the industry is cyclical, defensive, or sensitive. Furthermore, components that boost the economy, such as competition, is very prevalent in the technology sector.
Sector type is a simple way to determine whether a company or industry will be greatly affected by economic conditions. Before delving further, each industry type should be understood. A cyclical sector refers to one that is extremely sensitive to the ups and downs of a business cycle; for example, a cyclical company would be greatly affected by the current pandemic. A defensive sector is the opposite of a cyclical one, and they are not affected, or they are affected very little, by the business cycle. Finally, a sensitive sector describes one that is in between cyclical and defensive; it is moderately affected by peaks and troughs of a business cycle.
This assists in our understanding of why the Food and Beverage Stores industry is one of the least affected by the pandemic as well as other economic events; it is because this industry belongs to the defensive sector. It is understandable as to why this is; food and beverages (such as water) are a necessity of life, thus people will always be in the market for it despite current events. The prosperity of the data processing, internet publishing, and other information services industry can partially be attributed to it being under the sensitive sector. However, there are also other factors at play.
Competition is another explanation as to why this subindustry is doing well. Many companies have used the current economic condition to their advantage by creating new services and products that were designed to assist employees and others as they work from home. Furthermore, many individuals are more than accepting of these products because they view it as a necessity. For instance, the need to remain employed (achieved by working from home) drives up the demand for these products especially as companies begin making certain products, such as video chatting software, mandatory.
Another feature of data processing, internet publishing, and other information services is that many companies are coming out with groundbreaking cloud computing technology. For instance, many human resource departments are improving their efficiency through the use of human resource cloud technology; this allows for quicker examination of applicants and easy storage and access of information for future reference. In turn, the need to increase efficiency will result in corporations gravitating towards the use of this and other new technology. Finally, many tech companies have already been known for having large amounts of cash on hand from the minimization of operating expenses; this allows them to be better prepared than corporations in cyclical sectors with a small amount of cash on hand.
By: Joseph Kuta
Left highlighted point is the food and beverage stores subindustry point (7.29%).
Right highlighted point is the data process, internet publishing, and other information services subindustry point (5.78%).
Information gathered from www.bea.gov.
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