3 categories of industry classification

The prospect of growth potential and profitability in selecting stocks is a very important criterion. And the growth and profitability of a company are greatly influenced by the industry outlook that the company belongs to.

In other words, the analysis of industry changes is a very important reference for stock investment.

For an analysis of industrial change, it is important to understand the characteristics of each industry and how they relate to the flow of the economy.

Industries can be classified into three types according to type. Let’s look at the classification and characteristics of each type.

General industry classification

In general, there are three types of industries: primary industry, secondary industry, and tertiary industry. The primary industry belongs to the agriculture and forestry fishery, the secondary industry belongs to the manufacturing industry, and the tertiary industry belongs to the service industry.

  • Primary Industry: Agriculture, Forestry and Fishing
  • Secondary Industry: Manufacturing
  • Tertiary industry: service industry

Industry classification related to economic fluctuations

Industries related to economic fluctuations are divided into economic sensitive industries and defensive industries. In the economy sensitive to the economy, sales and profits increase sharply when the economy is good, but sales and profits fall sharply during the depression. The defensive industry is not affected by the economic downturn.

Industries that are sensitive to the economy include durable goods industries such as industrial machinery and automobiles, and construction industries. The defensive industries include consumer goods such as food and beverage, utilities such as electricity and gas.

  • Industries that are sensitive to the economy: durable goods industries (industrial machinery, automobiles, etc.)
  • Defensive industries in the economy: Consumer goods industry (food and beverages), utilities industry (electricity, gas, etc.)

Industrial classification by time difference of economic fluctuations

There are three types of industries that are affected by economic fluctuations and time difference.

The first is the industry that grows ahead of the economy if it is faster than the overall economy. Secondly, if you are accompanied by economic fluctuations throughout the economy, it is an industry that grows with the economy. And lastly, if it is slower than the overall economy, it is an industry that grows later than the economy.

There are industries that grow as the economy develops, and declining industries. In general, industry changes from primary industry to secondary industry depending on economic development. And again, the secondary industry is transformed into the tertiary industry. In addition, as the industry changes, the manufacturing industry may occupy a larger share of the producer goods industry than the consumer goods industry.

There is a dramatic polarization between the growth industry and the specification industry due to economic development.

In Korea, export-related industries continue to boom, while domestic-related industries have been in a stagnation for a long time. This is because the manufacturing industry is growing as exports grow, but the service industry, which is self-employed, is in an oversupply situation and is experiencing fierce competition and severe stagnation.

So, in order to make the right investments at the right time, it is necessary to classify industries and learn about industries and companies in each sector.

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