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April 01, 2002 01:00 AM

Manufacturers predict slower recovery

Steve Toloken
Assistant Managing Editor
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    Business in January and February surprised Steve Murrill, president of Profile Plastics Corp. - simply because it wasn't all that bad.

    After a slow 2001, he expected 2002 to start the same way. But when many of the projects in the vacuum forming company's pipeline started to come through, business picked up. Now, Murrill hopes for business for the Lake Bluff, Ill., company to be up 10 percent this year, but he admits to a lot of uncertainty.

    Murrill probably is not alone.

    Generally, manufacturers expect the U.S. economy to grow 2-3 percent this year, but four in 10 predict the recession will continue in their sectors, according to a new survey from the National Association of Manufacturers.

    NAM released the survey March 18 during National Manufacturing Week in Chicago. Generally, the survey ``shows a mixed bag,'' according to Jerry Jasinowski, president of Washington-based NAM.

    ``More than two-thirds of respondents expected earnings-per-share for the first half of 2002 to be [up] 3 percent or below, confirming that manufacturing's emergence from prolonged recession will be slower than the rest of the economy,'' Jasinowski said. ``I and most manufacturers are modestly optimistic a recovery is under way.''

    On the positive side, inventories have been depleted, consumer spending remains good, sectors like home building are strong and stimulus legislation recently enacted by Congress should help, he said.

    But NAM members said there are many negatives: continued trouble in sectors like telecommunications, tight credit that makes it tough to get financing and an overvalued dollar.

    The upshot, Jasinowski said, is that manufacturers continue to view cost cutting as the best way to boost profit, followed by introducing new product lines and embracing lean manufacturing.

    Jasinowski used his appearance at the National Manufacturing Week trade show, held March 18-21, to plug NAM's legislative priorities, such as drilling for oil in the Alaska National Wildlife Refuge and urging Congress not to overreact to problems at Enron.

    But he also outlined some interesting findings in the NAM survey, based on responses from 300 members:

    * Heavy equipment is starting to take on a higher profile in capital spending plans, perhaps reflecting some recent overinvestment in software because of Y2K concerns. But Jasinowski expects software spending to rise as companies look to boost productivity. Two-thirds of those polled said they would spend half as much on capital projects this year as they did during the economic expansion of the 1990s.

    * Price pressures on natural gas, one of the key elements of energy policy for the plastics industry, should reappear when economic growth hits 3 percent. Oil price increases will remain modest in part because of additional production from Russia.

    * More than 55 percent of respondents said the dollar's value has had a negative impact on their firms. The NAM survey included a question asking specifically if companies have been able to offset the strong dollar with improved productivity. Half of the companys said flatly that they have not, he said. Lowering the dollar's value is on the trade agenda of the Washington-based Society of the Plastics Industry Inc.

    In the end, Jasinowski said that he expects tempered economic growth: ``I see no reason to join the club of those who see a 4-5 percent recovery on the horizon.''

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