Share this story
Close X
Switch to Desktop Site

Analysts See Slow Growth, But No Recession in 1990

US companies scramble to keep sales up with new products, rebates

THIS month Rubbermaid Incorporated will introduce a new color - black - to its line of home supplies. ``We're trying to introduce some excitement, some spice,'' says Stan Gault, the chairman of the Wooster, Ohio, company.

The introduction of the new designer color is one of the defensive strategies Mr. Gault's company is taking in anticipation of a slow year ahead. ``We're looking for 1 percent or less growth in the economy,'' says Gault.

About these ads

Rubbermaid is not alone.

Conventional wisdom calls for an economy that creeps along in the year ahead. A survey of 51 economists by the Blue Chip Economic Indicators found in early December that the economists expect 1.7 percent growth in the gross national product (GNP) for 1990. This is the lowest forecast for the group since the recession of 1982, says Robert Eggert, president of Blue Chip.

A recession is still not in the forecast for many economists. Sixty-two percent of the economists polled by the National Association of Business Economists (NABE) see no recession for the next three years.

There will be no recession in 1990, says James F. Smith, president of NABE, because the consumer will continue spending and the United States will continue on its export boom. With the high levels of income and employment, ``there will be continued good performance in consumer spending,'' says Dr. Smith, who teaches at the University of North Carolina School of Business Administration.

Going into the new year, consumer confidence is positive, reports Fabian Linden, executive director of the Conference Board's Consumer Research Center. ``There is no question the consumer is in good spirits, which under the circumstances means the economy is not going to take a bad turn,'' says Mr. Linden.

Even so, there is no question that the economy will be entering 1990 in a sputtering condition. This is in large part because of lackluster auto sales. This past year, the auto companies offered rebates to get customers into the showrooms.

Auto analysts estimate the rebates resulted in the sale of an extra 1 million cars, taking away sales from 1990. ``The payback period could last through the first half of 1990, assuming the economy does not fall off the cliff,'' says John Franck, a vice president at PNC Financial in Philadelphia.

About these ads

Other durable goods producers expect orders to fall this year compared with last year. Microwave ovens will be particularly hard hit since sales have ``peaked out.'' But the decline for core appliances such as ranges, refrigerators, and dishwashers will be only about 1 to 2 percent, says Bob Holding, the president of the Association of Home Appliance Manufacturers in Chicago. One big plus for the manufacturers is the continuing trend of yuppies to remodel their kitchens.

The textile industry is also tightening its belt this year. Imports are continuing to increase, inventories are rising, and order rates are falling. Even so, Ed Schrum, president of the American Textile Manufacturers Institute, says the year will not be that bad. ``The industry has streamlined and slimmed down so it's faster on its feet,'' says Mr. Schrum, also the president of Carolina Mills, a textile company.

The housing sector is also entering the new year in a less than robust manner. But Lyle Gramley, chief economist for the Mortgage Bankers Association, says that declining interest rates will give a modest boost of 5 percent to the industry this year. He expects mortgage rates could fall as low as 9 percent by June.

The prospect of weak growth is stimulating defensive strategies on the part of many companies. At Rubbermaid, for example, the company not only is introducing new colors, it also is expanding into a new line - brooms, brushes, and mops.

To get a leg up on the competition, Bruno Eisner, vice president for sales at American Brass Company in Buffalo, says the firm is trying to reduce the delivery time for customers. ``If you can reduce that lead time, you can get more business,'' says Mr. Eisner.

And, at Carolina Mills, in Maiden, N.C., managers are shifting production to areas not hit by the slowdown yet. For example, Schrum says it will produce more fabric for children's sleepwear and less for the auto industry.

Some industries are still strong and expect a good year. These include machinery, petroleum, food, printing, paper, and chemicals. ``Although some people argue the manufacturing sector is already in a recession, some of the stronger sectors are offsetting some of the weaker,'' says Richard Stuckey, economist at E.I. du Pont de Nemours & Co. in Wilmington, Del.

With the economic slack, economists expect the Federal Reserve Board will continue to drop interest rates. Economist Gramley, a former governor of the Fed, says he believes the first move of the year will come this month when the Fed drops short-term interest rates.

The Fed, Gramley says, will lower the discount rate - the rate member banks pay to borrow funds - to 6.5 percent from 7 percent. ``This will not be the last step by the Fed. There will be further steps to ease later in the year,'' he predicts.

As short-term interest rates fall, the chances of the economy slipping into a recession shrink. Economist Stuckey points out recessions do not take place while short-term rates are falling. ``We don't have the credit market stresses that precede a recession,'' he says.

Follow Stories Like This
Get the Monitor stories you care about delivered to your inbox.