Meet the Winners in a Weak Economy

Health care companies tend to hold their own regardless of the economy, says John Worrall, an economics professor at the Rutgers School of Business-Camden, who notes that people place a premium on maintaining their health. Last month, for example, New Brunswick’s Johnson & Johnson reported that first-quarter net income rose to $3.6 billion on record sales of $16.2 billion, up from $2.6 billion of profits on $15 billion of sales in the year-ago quarter.

While Pfizer Inc. reported an 18 percent drop in first-quarter profits, the industry as a whole generally did well, with Merck & Co. Inc. and Bristol-Myers Squibb Co. reporting strong quarter-over-quarter gains and Schering-Plough handily beating analysts’ expectations.

Also expected to thrive are automobile parts and services companies, even as new-car sales decline. “When fuel costs are high and the economy is uncertain, car owners pay more attention to their vehicles as a way to keep them running longer,” says Worrall. “Preventative maintenance is a lot cheaper than buying a new car.”

Strauss Discount Auto is among those benefiting from that trend. “Our car-part sales are trending up,” says Glenn Langberg, chief strategy officer at the South River-based auto parts supplier, which operates some 90 stores in New Jersey and nearby states. “Higher fuel costs are pushing people to pay more attention to their tires, tune-ups, oil changes and other maintenance-related activity,” says Langberg.

Cole, Schotz, Meisel, Forman & Leonard PA, a New York City-based law firm with offices in New Jersey, is doing well too. “The amount of our insolvency work is up significantly over the last six months,” says Michael Sirota, a member of the firm who manages its bankruptcy and corporate restructuring department from his Hackensack office.

Sirota says Cole Schotz hired six bankruptcy attorneys in March to staff new offices in Baltimore and Wilmington, Del., bringing the firm’s bankruptcy department total to 23.

“The increase in insolvency is not limited to a particular industry,” says Sirota. “Instead it’s across the board.”

While giant financial institutions such as Citigroup Inc. and Wachovia Corp. have reported huge losses tied to the subprime mortgage meltdown, some small community-based lenders have shown improved profits. For example, Hudson City Bancorp Inc. in Paramus last month reported that first-quarter net income rose to $88.7 million on revenue of $613.3 million, up from net income of $71.2 million on revenue of $479.6 million for the year-ago period.

The banking company said the improved results reflected the fact that its cost of money declined more than the interest rate on mortgages.

Meanwhile, “it’s not unusual for universities to see a spike in enrollments for graduate business programs when the job market is more competitive,” says Worrall of Rutgers-Camden. “A number of people have told me they plan to get their MBA as a way of making themselves more valuable to an employer.”

Worrall says the current economy can harbor surprises. “For example, you might think that high-end restaurants would not hurt too much during a recession, since the people who go there tend to have more discretionary income,” he says. “But even a high-end restaurant might suffer if it hosts a lot of business luncheons and companies cut back on their outside meal costs.”

Ronald Cook, a professor of entrepreneurial studies at Rider University in Lawrenceville, says the current economic malaise differs from the 1970s slump brought on by runaway oil prices. “In the early 1970s, high energy prices were largely responsible for a recession, but the weak economy soon helped to spur a retreat in energy prices,” says Cook.

“This time around, global demand is driving energy prices up even though the general economy is slowing, and even though consumers have reduced their total energy use. We could be in this fix for some time.”

Anecdotal evidence suggests that today’s tough times appear to be driving changes in local consumer spending. “An acquaintance who owns a beauty salon recently told me that people are stretching out the time between their hair-colorings and other treatments,” says James Barrood, executive director of the Rothman Institute of Entrepreneurial Studies at Fairleigh Dickinson University in Madison.

“Also, I was recently in Chester, and high-end gift shops were almost empty, while the lower-priced dollar stores were doing a brisk business.”

Supermarkets are also seeing changes in shopping patterns. “Food is a basic necessity so our overall sales are holding up well, but we are seeing some shifts in product purchases,” says Karen Meleta, spokeswoman for ShopRite Supermarkets, an Edison-based cooperative.