Gloom spreads, but hope lives on in some corners
By Anne M Porter -- Purchasing, 12/10/1998
Purchasing's latest reader poll finds a distinct rise in economic doomsaying, but few buyers have jumped onto the recession bandwagon. While just 38% of surveyed readers expect the U.S. GDP to grow in 1999, only 10% believe the U.S. economy will slip into recession during the coming year. The remaining 48% think the U.S. can outwit global recession forces, registering, at very worst, zero growth in 1999.The poll confirms earlier reports showing two distinct personalities at play in the U.S. economy. Fifty-three percent of survey respondents classify 1998 as a very good year (2.5% or more growth) for their firms. Some say 1998 will be a record breaker. Meantime, 20% of buyers surveyed expect their firms to record losses in 1998. Among this group, three-quarters say their sales declines will exceed 2.5%.
Worst hits appear in industries linked to oil, steel, paper, semiconductors, and aerospace. Examples--
* The PM for a Houston-based oil-well service provider says "the market is way down."
* The PM for a steel supplier in Pa. classifies 1998 as "very bad," remarking that, "imports have reduced the need for my company's product."
* Several PMs say their firms have been hurt by canceled orders into Boeing.
* The supply management exec for a U.S. semiconductor maker says the industry is experiencing "a large overcapacity situation which has led to declining prices, layoffs, and plant shutdowns."
* The PM for a Southern packaging concern says, "due to the Asian crisis, the export of paper has been down." Meantime, the PM for a paper-industry OEM in the Northeast says "dumping of foreign paper into the U.S. market is preventing domestic mills from investing in new equipment."
Tip of the iceberg
Given the vast potential reach of these five industry segments, it's no wonder that purchasers are worrying about what troubles may lurk beneath the surface of the U.S. economy. What is more, many attribute their companies' 1998 stellar sales performances to "aggressive marketing" (read, price discounting), entry into new markets, or introduction of hot new products. Others say they're simply operating in either recession-proof businesses (such as security equipment) or in businesses that tend to grow when the economy declines (such as industrial automation equipment).
There are also signs that companies recording strong growth in 1998 may have done so at the expense of profits or future growth. For example, the director of materials for a lubricants manufacturer chalks up the company's success to "very competitive market pricing." Meantime, the purchasing exec for a major U.S. automaker suggests that, "current discounts offered to promote sales will potentially reduce sales."
For these reasons, even firms experiencing strong growth in 1998 are hedging their bets for 1999. Only 15% of surveyed buyers expect 1999 to be a very good year for their companies, half say their firms anticipate very modest growth (2.5% or less), 30% say their sales forecast is flat, while 18% say their firms expect outright declines in the coming year.
What might go right
Compared to prior years, this outlook from industrial purchasing execs looks admittedly grim. Still, Purchasing's survey finds fundamental confidence that the U.S. economy can weather any storm in the coming year.
"As a whole," says Regis Wintermantel, purchasing manager for Union Electric Steel Corp. in Carnegie, Pa., "the U.S. economy is and will continue to be strong as a result of low interest rates and the optimistic attitude of Americans." Says Ronald Parsons, purchasing manager, for lotte, U.S.A., in Battle Creek, Mich., "If companies are diversified and well managed, consistent growth or stability should prevail in bad economic times."
Beyond this fundamental confidence in the durability of U.S. businesses, many purchasing pros hold hopes that a combination of falling interest rates, continued low unemployment, signs that Asian markets are stabilizing, and signs of economic improvement in Europe might breath unexpected life into the U.S economy next year.
A few wonder if their gloomy economic outlooks might be too tightly governed by their own narrow experiences. For example, one buyer admits to "looking only at oil-related and banking economies." Another says his "outlook may be too micro in perspective."
Still others suggest their views may be swayed by negative reporting from journalists hungry for dramatic stories. One survey respondent says, "I hope the news media doesn't talk us into recession." Another echoes this concern suggesting that the "news media will talk us into a slowdown in 1999." Yet another purchasing pro points to "media sensationalism," suggesting that the "media tends to blow things out of proportion."
As one survey respondent puts it: "The crisis has been around for more than a year; if it was going to cause a global recession, I believe it would have done so by now." Another thinks "differing cycles among countries," may bring salvation from global recession.
What might go wrong
Faith and hope aside, few purchasing pros are prepared to ignore the doomsayers altogether. Roughly two-thirds of surveyed buyers say global recession remains a distinct possibility for the coming year. Asked to assign probability to such an outcome, their weighted average guess works out to around 33%. Of the buyers who think global recession is possible, 35% assign a probability of between 25% and 50%; half say 25%-50%, 15% think the odds exceed 50%, and zero percent think the probability of global recession exceeds 75%.
"In one sense," says Wesley Bickers, director of materials and production for D-A Lubricant Company in Indianapolis, "it's the grass roots indicators." For example, he says, "traditionally in the purchasing department, the volume of sales contacts from potential suppliers rises--sometimes dramatically--when there is a downturn either occurring or just around the corner. We're beginning to see this happen again," Bickers says.
In the U.S., buyers are most concerned about the possibility of panic on the stock market, the effects of commodity price deflation, and perceived inattention among U.S. policymakers. Some fear that traditional economic levers may prove ineffective when they are most needed. As one survey respondent puts it: "Interest rates can only go so low." Another worries that "economic policy and actions will not fix the crisis effectively in a timely manner."
On the global stage, survey respondents fear new rounds of currency devaluations and they fret the apparent inability of world governments to coordinate their responses to economic and financial crises.
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