“This paper reconciles industry conditions with the state of the economy in driving asset liquidation values and, therefore, recovery rates on defaulted debt securities. Macro-economic effects matter but they operate differentially at the industry level. I find that industries whose sales growth is more correlated with GDP growth recover less during recessions. And industries that are more dependent on external finance recover more when the stock market rises. Direct measures of industry distress and industry fundamental value, in addition to measures of bond market illiquidity, enter with reduced economic and statistical significance once the constraint that the macro-economy should have a uniform effect is relaxed. The results of this paper are not incompatible with the industry-equilibrium view put forward by Shleifer and Vishny (1992) and others, but it unmasks a channel of transmission from the macro-economy.”