Industries

Aerospace

The aerospace industry develops and manufactures planes, engines and related components for the civil and defense markets. Over the past five years, the industry’s commercial segment rapidly rebounded with demand lifted by rising global air travel and fleet replacement. Rapid economic growth in emerging markets also increased global air travel – and as a result has increased demand for exports of large commercial aircraft. The U.S. economic recovery also led to increased domestic air travel, helping demand for commercial aircraft – even though most demand is being driven by fleet replacement. The defense industry, however, has been hit hard by declining U.S. defense spending. Industry consolidation will also continue, especially as increased demand encourages a larger formation of suppliers that have the capacity to handle this demand.

Automotive

The automotive industry involves the manufacturing of vehicles and parts for commercial and individual purposes. As the economy rebounded after 2010, consumer sentiment rose – and interest rates at historically low levels combined with extra incentives increased demand. Prospects ahead are encouraging for the industry, and profit is expected to trend upward over the next five years as industry operators benefit from rising vehicle sales and the cost-cutting measures enacted during the downturn.

Generally, automakers are focusing on the production of smaller, lighter and more fuel-efficient vehicles to become more competitive in the wake of rising regulations and volatile fuel prices. Shifting consumer preferences, along with a general recovery in the demand for vehicles, is expected to lift industry revenue over the next five years. Additionally, re-shoring activity is anticipated to become prominent as more flexible labor agreements encourage industry operators to expand domestically.

Construction

The construction industry has strongly rebounded over recent years. Tight credit markets, lower consumer spending and high unemployment slowed growth until recently as demand for new commercial and residential space has been low.

Commercial construction typically lags behind the overall economy by one to two years due to the length of contracts. As economic activity has increased, contractors’ backlogs have filled and demand for new construction has picked up. As a result, many construction outfits are now able to raise prices – slowly leading to increasing profit margins.

Road and highway construction is also expected to increase due to the need to repair, expand and rebuild existing infrastructure. Together with growing congestion caused by urban sprawl, these factors will force authorities to spend. Demand is expected to remain strong over the coming years in all areas as a result of decreasing office vacancy rates, increased infrastructure spending and greater new home starts.

Oil & Gas

The oil and gas industry has been challenged by recent declines in oil prices, which are now expected to be sustained for some time. New technologies and extraction techniques, however, are enabling a quick recovery from the negative shock of low prices. Domestic production of oil and gas has steadily increased, and industry operators have positioned themselves to perform strongly in the future.

The industry includes a few extremely large globalized companies that typically engage in all steps of the production process – everything from exploration to refining. These large companies received the majority of the benefits from the emergence of hydraulic fracturing and horizontal drilling techniques. As operators deplete their reserves, it becomes increasingly necessary to improve efficiency and minimize waste. Nonetheless, the number of industry operators is expected to increase, as previously uneconomical resources have become accessible.

Finance and Banking

The finance and banking industries serve to facilitate personal and corporate investment and financing activities.

Commercial banks are experiencing low revenues due to historically low interest rates. Furthermore, non-interest income remains volatile due to weakness in private business start-ups and expansions, as well as a sluggish residential real estate economy. One bright aspect has been mortgage refinancing, which has seen robust activity as people move out of higher interest mortgages. The industry is experiencing significant consolidation recently, and the robust performance of capital markets over the past several years has also boosted profit margins. In addition, the number of credit-worthy borrows has increased.

Looking to the future, government regulation and technology-driven competition are expected to dramatically change the business model that commercial banks use. Revenue will become less volatile, and big banks will grow deposits at a faster rate than smaller savings institutions since their reputations were damaged due to the significant number of bank failures that occurred during the economic downturn.

Grocery Stores

The supermarket and grocery store industry has grown recently due to a strengthening of the domestic economy. Average disposable incomes have grown over the past few years, and as a result some consumers have traded up to premium brands with a focus on organic and all-natural items. On the downside, food costs have been inflationary in general – which has caused many consumers to continue purchasing private label and generic brands.

Despite growth, grocery stores are facing intense competition from alternative retailers – especially warehouse clubs and supercenters – because of the savings and convenience they can offer. In response to this competition, many supermarkets are offering substantial discounts and promotions to drive foot traffic and strengthen consumer loyalty.

Steady commodity prices and flattening input costs should benefit all food sellers, but overall the increased competition will continue to place downward pressure on traditional supermarkets and grocery stores.

Restaurants

The restaurant industry has grown over the past several years thanks to declining unemployment and improved consumer confidence, resulting in greater spending on sit-down meals. While profit margins remains slim, costs have been kept under control resulting in growth through volume.

Full-service chain restaurants operate in competition against independent restaurants, fast-food chains and other establishments offering meals to eat in or take away. The trend over recent years has been greater convenience at a lower cost, which has hurt sit-down meals restaurants the most. In response, full-service restaurants have invested in technology to cut costs and redesigned layouts. Fast casual restaurants that serve high-quality food at reasonable prices will keep increasing competitive pressures and force profit margins to remain slim into the foreseeable future.

Healthcare

The healthcare industry is comprised of many players; however, it is driven by primary care doctors and hospitals. The aging population has increased demand for healthcare services in recent years with no expectation of this trend easing.

Chronic illnesses are disproportionately prevalent in older adults and rising significantly due to demographic shifts. Additionally, the passage of the Patient Protection and Affordable Care Act now requires all individuals to obtain healthcare coverage. As a result of rising coverage, demand for primary care has grown substantially. But despite this growth, the number of primary care doctors has not expanded enough to keep pace with demand.

The hospital segment is consolidating and organizations are seeking the most skilled and specialized healthcare professionals. Consequently, labor costs in this industry are high and hospitals are increasingly facing nurse and physician shortages. Home healthcare and remote diagnosis of routine minor illnesses are becoming more common.

Technology

The technology industry has grown dynamically over recent years as businesses and consumers buy more software, computers and mobile devices. Additionally, a side effect of web-based solutions and mobile devices has been an explosion of sensitive, private data requiring complex security software products.

The near-term is expected to center on software increasingly entering day-to-day activities as well as the rise of big data predictive analytics and artificial intelligence. Phones and mobile computing devices are providing new platforms on which software publishers can compete. Additionally, the rapid move toward cloud computing is opening an array of software possibilities as phones and tablets are no longer limited by low storage capacity. Finally, demand for security software to protect data is expected to rise considerably as new technologies continue to enter everyday life more and more.

Manufacturing

The manufacturing industry is comprised of a variety of participants – everything from large, multinational corporations to local, family-owned businesses. Furthermore, these companies make everything from small specialty parts to household appliances and large construction equipment. As a result, the manufacturing industry is highly dependent on the health of other industries – especially construction and housing.

In recent years, the manufacturing industry has been forced to contend with increased international competition and the lingering effects of the recession. International competition comes primarily from low-wage countries with little employment and environmental regulation. This enables competitors to manufacture products at significantly lower costs. In response, many domestic companies have off-shored production. The future trend, however, is expected to include substantial repatriation of manufacturing due to consumer frustration with the low quality of foreign products. On the domestic side, upgrades in infrastructure and a continued housing recovery are anticipated to lead to greater demand.

Retail

The retail market is made up of two primary segments: small, specialty retailers and larger, big box stores. The retail industry is highly fragmented as it comprises an array of products. As a result, the industry is driven primarily by macroeconomic trends.

Over the past several years, warehouse clubs and online retailers have taken market shares by providing one-stop shopping and lower prices. This competition has forced out underperformers; however, it has not reduced the overall number of small shops. This is because there is significant freedom of entry and exit due to the low capital and other entry requirements for the industry.

Going into the future, the biggest threat to brick and mortar stores will come from online retailers. In order to survive, smaller shops will have to get in the online game themselves, as well as improve their efficiency and value proposition. As a consequence, surviving retailers are expected to realize higher profit margins and have a bright future.

Real Estate

The real estate industry is closely aligned with fluctuations in the residential and commercial real estate markets. Industry revenue is directly correlated with property prices and real estate transaction volumes because pay is commission based. The residential market represents more than two-thirds of industry revenue, making the industry especially sensitive to housing prices and existing home sales.

Increasing disposable income and low interest rates have helped increase home affordability and bolstered demand. Additionally, rising house prices lead the way for steady gains in industry revenue. However, anticipated gains in employment will force the Federal Reserve to raise interest rates over the next few years. Higher interest rates will increase borrowing costs and reduce demand for homeownership. Both factors have the potential to limit industry growth in the coming years.

Travel

Travel agencies are growing once again. Traditional operations are reinventing themselves to remain relevant in an industry now dominated by online travel websites, such as Expedia and Priceline. Consumers can now research locations, compare prices, book travel and manage reservations without the assistance of an expert, negating the role of traditional travel agencies. Consequently, many travel agencies have been forced to find new markets and niches, such as serving the corporate sector or luxury travelers.

International trips, especially those to exotic locations, generally involve more complicated arrangements that require the services of professional travel agents. The traditional industry has also benefited from an increase in travel to emerging economies, as consumers are more inclined to have their plans organized by a professional when there is uncertainty surrounding their destination. Consumers who remain price conscious and who are comfortable making their own travel arrangements online will continue to present a significant challenge to the industry’s thousands of traditional travel agencies.