It's been so long since North America has had a real economic downturn that there's a whole generation of managers — not to mention shop-floor workers — who have no experience navigating such troubled waters.
It's no wonder, then, that so many processors are poorly prepared for a recession. Some have taken on huge chunks of debt, betting their company's future on years of growth and good times to pay off the burden. Many have too much business concentrated in the hands of a few key customers, leaving themselves unprepared for sudden troubles.
Judging from the processors and experts quoted in this week's issue, our 2001 Economic Outlook Special Report, the North American plastics industry is in for a slowdown. It's pretty tough to maintain the record growth that this industry has experienced the past few years. After years of boom, a year of stagnation may seem like a terrible depression. But the reality probably won't be quite that nasty.
The trouble that we'll see first, though, will be with companies that already are on the edge of failure. The strong economy of the past decade has made it awfully tough for even the worst-managed companies to fail.
Until very recently, even underperformers could count on finding cash-heavy investors willing to bail them out of trouble. But merger mania is slowing. It looks now like most of the activity in early 2001 will be from bargain hunters with cash to spare on the watch for distressed owners willing to sell at a discount.
Tougher times could present plenty of opportunities for quick-thinking processors. Many original equipment manufacturers will be looking for ways to save money, which could mean outsourcing more molding, design or value-added services.
Global competition offers challenges, but many companies still are not taking advantage of the opportunities offered by the North American Free Trade Agreement. Mexico's economy is booming, and processors there are desperate for updated technology.
If the economy is in for a correction, it's pretty likely that it won't be too deep or too long. Things just aren't messed up enough to send North America into a real tailspin. Given the divided government in Washington, it's doubtful that legislators could agree to many changes that would set the nation tumbling.
Finally, a disclaimer: Although this column is about a potential recession, please don't blame us if the economy slumps. The workings of the economy are a complicated combination of money supply, consumer confidence, trade, taxation, the weather, savings, investment, politics, inflation and expectations.
It is ridiculous to believe that reporting on lowered expectations — even George W. Bush's or Alan Greenspan's — actually can cause a recession. Greenspan's cryptic comments may sway the daily Dow Jones Industrial Average, but his actions, not his words, actually impact the U.S. economy.
As for George W., he'll soon learn that his best lever to control the economy has nothing to do with his utterances, but rather involves getting his Treasury Department to work in concert with Greenspan.