Five Riskiest Sectors in Current Sluggish Economy
September 10, 2008
Ratings agency Standard & Poor’s has named five sectors with the highest risks for further drops in this economy downturn. There is not big surprise to find the sectors/sub-sectors on the top list. They are exposed directly to the beast credit crunch, skyrocketing energy cost, housing downturn, or slowing consumer spending.
Financials
This sector is hit the hardest by the massive write-downs in the sector and their most direct exposure to the credit market. S&P said, “Continued stress in the housing market and concerns over liquidity and the need for more capital have kept the outlook for the financial sector, and brokers in particular, fairly negative”.
Transportation
Higher energy costs and slowing consumer spending are taking a major toll on the transportation industry, particularly airlines and trucking firms which are having difficulties raising prices to offset higher fuel costs. “Of the major transportation sub-sectors, railroads have faired the best, mostly because of a lower sensitivity to fuel prices and decent pricing power, even as demand has softened,” S&P said.
Automotive
The industry was already struggling before oil prices broke through $100 a barrel, and the current environment has only made things worse. S&P said, “Although automakers have garnered big headlines, suppliers have not been immune. Indeed, negative bias is running at 55% among auto suppliers, as fundamentals for the industry remain negative”.
Forest Products and Building Materials
The housing downturn is weighing on building-materials companies, as expected. But the bursting bubble is exacerbating problems for forest-products firms, which were dealing with slowing demand for paper in an increasingly digital world. “The paper industry in general has faced rising costs,” S&P said.
Media and Entertainment
The slowing economy has damped consumer spending, as ad dollars dry up and move to the Internet. S&P said, “Analysts project to grow modestly at only 3.3%, despite the summer Olympics and presidential election. Total ad spending is projected to be flat to lower (negative 0.1%) in 2009”.
Source: wsj.com