Automotive
The automotive industry involves manufacturing vehicles and parts for commercial and individual purposes. 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. As the economy rebounded after 2010, consumer sentiment rose – and interest rates at historically low levels combined with extra incentives increased demand.
Generally, automakers focus on producing smaller, lighter, and more fuel-efficient vehicles to become more competitive in the wake of rising regulations and volatile fuel prices. Shifting consumer preferences and a general recovery in demand for vehicles are 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 contracts’ length. As economic activity increases, contractors’ backlogs have filled, and new construction demand has picked up. As a result, many construction outfits can now raise prices, slowly increasing profit margins.
Demand is expected to remain strong over the coming years in all areas due to decreasing office vacancy rates, increased infrastructure spending, and greater new home start. Road and highway construction is also expected to increase due to the need to repair, expand, and rebuild existing infrastructure. With growing congestion caused by urban sprawl, these factors will force authorities to spend.
Grocery Stores
The supermarket and grocery store industry has grown recently due to strengthening the domestic economy. Average disposable incomes have grown over the past few years. As a result, some consumers have traded up to premium brands, focusing 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 the growth, grocery stores face intense competition from alternative retailers – especially warehouse clubs and supercenters – because of the savings and convenience they can offer. Many supermarkets offer substantial discounts and promotions to drive foot traffic and strengthen consumer loyalty in response to this competition.
Steady commodity prices and flattening input costs should benefit all food sellers, but overall, increased competition will continue to place downward pressure on traditional supermarkets and grocery stores.
Restaurants
Thanks to declining unemployment and improved consumer confidence, the restaurant industry has grown over the past several years, resulting in greater spending on sit-down meals. While profit margins remain slim, costs have been kept under control resulting in growth through volume.
Full-service chain restaurants compete against independent restaurants, fast-food chains, and other establishments offering meals to eat in or take away. The trend has been greater convenience over recent years at a lower cost, which has hurt sit-down meal 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 Patient Protection and Affordable Care Act passage 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 seek the most skilled and specialized healthcare professionals. Consequently, this industry’s labor costs are high, and hospitals increasingly face nurse and physician shortages. Home healthcare and remote diagnosis of routine minor illnesses are becoming more common.
Technology
The technology industry has grown dynamically 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 and the rise of big data predictive analytics and artificial intelligence. Phones and mobile computing devices provide new platforms on which software publishers can compete. Additionally, the rapid move toward cloud computing opens various software possibilities as phones and tablets are no longer limited by low storage capacity. Finally, the demand for security software to protect data is expected to rise considerably as new technologies 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 other industries’ health – especially construction and housing.
The manufacturing industry has been forced to contend with increased international competition and the recession’s lingering effects in recent years. 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. However, the future trend is expected to include substantial manufacturing repatriation 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 comprises 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 are significant entry and exit freedom due to the industry’s low capital and other entry requirements.
Going into the future, the biggest threat to brick and mortar stores will come from online retailers. To survive, small shops will have to get in the online game themselves and improve their efficiency and value proposition. Consequently, surviving retailers are expected to realize higher profit margins and have a bright future.
Real Estate
The real estate industry is closely aligned with residential and commercial real estate market fluctuations. The residential market represents more than two-thirds of industry revenue, making the industry especially sensitive to housing prices and existing home sales. Industry revenue is directly correlated with property prices and real estate transaction volumes because the pay is commission-based.
Increasing disposable income and low-interest rates have helped increase home affordability and bolstered demand. Additionally, rising house prices lead to 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 reinvent 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 an expert’s assistance, negating traditional travel agencies’ roles. Consequently, many travel agencies have been forced to find new markets and niches, serving corporate or luxury travelers.
International trips, especially to exotic locations, generally involve more complicated arrangements requiring professional travel agents’ services. The traditional industry has also benefited from increased travel to emerging economies. Consumers are more inclined to have their plans organized by a professional when uncertainty surrounds their destination. Consumers who remain price conscious and comfortable making their travel arrangements online will continue to present a significant challenge to the industry’s thousands of traditional travel agencies.