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Some good, some bad: where outlooks are pointing.

Mild downturn, anemic upturn

Two months ago I wrote, "don't count your recession chickens before they're hatched." Well, they hatched. It now appears the recession began in September 1990; the October figures, which showed much larger declines, verify this.

In the upcoming recession, we have predicted a fairly large decline in consumer purchases of goods, mainly because of higher oil prices. This decline mirrors the reductions that occurred following the previous two energy crises. The gain in exports may look substantial, but it is far less than the average increase over the past five years. The decline in industrial production is smaller than average precisely because the decline in inventories will be milder than usual; inventory stocks have been under better control. However, the reduction is still steep enough to bite.

In virtually every recession, real GNP and industrial production decline sharply for two to three quarters; it takes that long for businesses to shed their excess costs, complete layoffs, and work down inventory stocks.

But recoveries differ. In some cases, the economy receives a major boost from a tax cut or lower real interest rates. When that happens, the economy invariably bounces back strongly, with real GNP rising at least 6% the following year. Congress or the Fed often act to put the economy back on track once it is established that the recession is well underway.

However, that doesn't always happen. In 1971, for example, the economy hardly bounced back at all...The 1981 recovery was so sluggish that the economy slipped back into recession by the end of the year. Thus in three of the last seven recoveries, the economy never really recovered after the recession had officially ended.

That is what will happen in 1991 once the actual decline in real GNP has run its course over the next two or three quarters. Congress isn't about to cut taxes after it just raised them. In fact, the deficit will balloon to over $300 billion this year because of the added cost of the S&L bailout and the shortfall of revenues caused by the recession. This gigantic deficit will also keep longterm interest rates from declining.

Finally, we have what is known as the repercussion effect in international trade. It is invariably the case that a recession in the US this year means that our exports decline next year. During a recession, our imports decline, which is the same thing as saying exports of other countries decline. As a result, their real growth is diminished, so the next year they import less from us, thus reducing our exports...Thus the economy will hardly rebound at all next year after the recession has ended. Growth will remain sluggish and the unemployment rate will continue to rise throughout 1991, exceeding 7% by year end.

To summarize, the good news is the recession will be mild, largely because inventories remained under control ... The bad news is that the recovery, when it does start, will be so anemic that in many cases growth will be invisible.

Yet, AMTDA poll is upbeat

Any economist who attended the September Machine Tool Show would have come away with an optimistic forecast about the future of manufacturing and machine-tool consumption.

A survey conducted by the American Machine Tool Distributors' Assn (AMTDA) indicated distributor orders of machine tools during the show and the two weeks following were 15% higher than anticipated. More importantly, the number of qualified leads generated (38% more than anticipated) indicate there are many buyers considering machine-tool purchases.

The survey indicated that industry segments most interested in buying included machine and job shops and the automotive and aerospace industries. Buyers appeared most interested in machining centers, lathes, and grinders, the survey showed. The reasons given for buying tended to relate to modernization and increasing competitiveness.

Cutting-tool firms optimistic

Cutting-tool sales this year are expected to either hold steady or increase slightly, a survey of the United States Cutting Tool Institute members shows.

James Packard, USCTI president, reports that, although members in the automotive, appliance, defense, hardware, construction, and do-it-yourself market segments expect some softening, three out of four members surveyed expect overall sales to be up. The rest felt sales would be flat or only slightly off during the next three months.

Toolmakers serving the airframe, aerospace, and energy industries expect sales to be up, added Mr Packard, who is president and CEO of Regal-Beloit Corp, South Beloit, IL. He concluded "This is mostly the result of the current Mideast crisis, which has been steadily driving up oil prices since August."

The USCTI president contends "1991 is going to be a year of great challenge and opportunity for makers of cutting tools and the cutting-tool industry in general. We're challenged by strong economic pressures at home and a very volatile political situation overseas. Yet, with the opening of the Eastern Bloc, recent improvements in our product quality and customer service, a weak US dollar abroad, and new life in domestic energy production, there is plenty of action seen on the horizon."

Machine-tool orders stable

October machine-tool orders totaled $269.30 million, up 1.9% from September's $264.35 million, according to figures released recently by NMTBA-The Association for Manufacturing Technology. At 2467.35 million, year-to-date orders are 2.1 % ahead of last year's $2417.25 million for the same period. Compared to October 1990, orders are up 31.4%.

Machine-tool shipments fell 14.9% in October, dropping from $254.35 million. The September figure reflects the usual end-of-quarter surge in shipments. Year-to-date machine-tool shipments totaled $2.68 billion, 7.2% ahead of last year's $2.5 billion. Compared to October a year ago, shipments are up 1.1%.

NMTBA president Albert W Moore noted, "The rise in new orders indicates that-despite gloomy prospects elsewhere in the economy-the level of business activity in the manufacturing-technology industries remains firm." He continued, "The US is at an economic turning point. For several years the real income of our citizens has remained flat. To improve the standard of living in the US, we must raise productivity. The machine-tool and manufacturing technology industries are central to the effort. Using the most up-to-date equipment substantially increases productivity, improves quality, and lowers cost. In spite of caution on the consumer side of the economy, US manufacturers need to look to the future. They have to take the long view, and that means they must continue to upgrade their manufacturing operations."

NAM predicts higher exports

"American companies must compete in global markets to be truly successful in the 1990s, and the 70% growth in manufactured exports since 1985 shows they can do it," claims Jerry Jasinowski, president, National Assn of Manufacturers.

"Manufactured export kept the US economy out of recession in early 1990 and will be critical to continued US growth. Exports have accounted for more than one-third of overall growth in the first half of 1990," he added.

He claims NAM members expect that trend to continue. Companies reponding to a recent NAM survey expect exports to double from 10% of total sales in 1981 to 20% of sales by 1993. "They expected 8% growth in their exports in 1990 and a 25% increase by 1993," he concluded. He went on to say the export boom has been broad-based, including traditional industries such as machine tools and general industrial machinery and parts, as well as computers, instruments, and aircraft.

Distributors still see growth

Total manufacturing shipments will have grown 1.8% last year and will advance another 2.2% in 1991, reports the Industrial Distribution Assn. Part of that optimism is based on the fact that several durable goods producers have seen especially strong gains in the past three or four months in engines and turbines, electrical apparatus, radio and TV, and aircraft, the IDA reports.

Orders for manufactured goods have been volatile, with strong monthly variations, the association reports in its quarterly forecast of economic trends. The trend, however, is up, with durables being much more robust than nondurables. This is due to continuing high demand in Europe, where capacity is tight and the investment boom continues. Total orders, it's expected, will advance over 6% in 1991, setting the stage for continued expansion in 1992.

"When examining the manufacturing industries' data closely," the IDA reports, "we see no signs of an impending recession. Visibly absent, for instance, are the overheating and tight capacity that often have precipitated massive, unintended inventory accumulation. The Mideast crisis may cause consumers and investors to spend less, but that will not push the economy into a full recession."

NTMA sees slowdown

Threats of a recession and the Mideast crisis are two factors contributing to a predicted downturn for the tooling and machining industry.

According to a National Tooling and Machining (NTMA) forecast, an 8% decline is expected in 1991. Predicted downturns in the industry include: tools, dies, and fixtures (-7%); molds (-5%); special machines (-9%); precision machining (10%); and aerospace machining (-8%).

The industry can soon be revitalized, however, because potential markets are developing as a result of the reindustrialization of eastern Europe. Pressure for energy exploration and saving measures in the US will force more product changes, requiring new tooling.

Automotive, aircraft, off-road, construction and agricultural equipment, building materials, and household appliances are some product types that will need major revisions. Replacing the nation's infrastructure, estimated to be in trillions of dollars, also means new business for the tooling and machining industry, the NTMA concludes.

Product liability reform delayed

The budget crisis and opposition of Senate Democratic leadership blocked a final vote on the Product Liability Reform Act (S.1400).

"Product liability reform was one of many bills sacrificed to the last-minute negotiations on the budget package," said St Clair J Tweedie, chairman of the Product Liability Coordinating Committee (PLCC), a national coalition of 700,000 manufacturers, product sellers, and other business leaders who support federal product liability standards. He promised the issue will be reintroduced in the next session of Congress. The PLCC is committed to restoring fairness to product liability laws," said Mr Tweedie. He listed three reasons why he will continue to push for the bill in the next session of Congress. First, America cannot compete effectively in a global economy without federal product liability reform. Second, without reforms, our product liability system will continue to deprive consumers of new and improved products. And third, under the current system, the plaintiffs' lawyers will continue to siphon off the majority of money awarded to injured claimants, denying them full compensation for their injuries."

Originally introduced by Senators Kasten (R WI), Inouye (D HI), Danforth (R MO), and Rockefeller WV), S.1400 was backed by 35 senators. It was also endorsed by President Bush as a priority for improving US competitiveness.
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Title Annotation:Management Update
Author:Evans, Michael K.
Publication:Tooling & Production
Date:Jan 1, 1991
Previous Article:From vision to reality.
Next Article:Japan machine-tool show continues evolution.

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