For most U.S. industries, 1983 will be a better year. But better does not necessarily mean good.
"Short of a 1930s-type depression, it's inevitable that most industries will recover somewhat. When you're near the bottom, it's hard to go anywhere but up," said the chief executive of a major steel company.
According to the Department of Commerce, only 66 of the 212 goods-producing industries it surveys had increases in shipments in 1982. This year 173 of those industries will improve on their 1982 performance, Commerce predicts.
But for a large number of industries, production will remain below levels reached in 1980 and 1981. Many industries will not see the glimmer of their own recovery until midyear or later. Some, especially the capital goods and heavy construction industries that rely on expansion and modernization in other industries, will be worse off in 1983 than they were in 1982.
Machinery and machine tools will continue to decline. Makers of farm equipment and heavy construction equipment are likely to suffer a similar fate.
On the other hand, automobile and truck manufacturers and home builders--and the industries that supply them--are likely to see an increase in sales and orders starting early in the year, according to Richard Peterson, chief economist for Continental Illinois National Bank.
The computer and other so-called high-technology industries that grew through the recessions of 1980 and 1982 should continue to do well in 1983.
It is almost always this way with business cycles. Parts of the economy decay later than others; some never feel the sting of the recession. The industries that succumb last often are the last to recover.
The key to 1983 recovery in large part is the level of inventory--goods made but not yet sold, or purchased but not yet used in production. Industries with low inventories will be much more sensitive to increases in demand than industries with large stockpiles of goods relative to sales.
The automobile industry, for example, stung by four years of declining sales, has pared its inventory to the bone. There are fewer built-but-unsold cars in dealer showrooms or on manufacturers' lots than at any time in the last 20 years. Even a modest uptick in sales could prompt auto manufacturers to step up production.
Similarly, three years of high interest rates have decimated the home-building industry. There are fewer unsold homes than at any time in the last 10 years.
The recent declines in interest rates coupled with a slowing rate of job loss in the economy has triggered an increase in sales of houses and cars in recent months.
According to Donald H. Straszheim of Wharton Econometric Forecasting Associates, "with sales advancing, production and employment gains cannot be far off in these two sectors."
If automobile production rises and more new homes begin to be built when spring arrives, other industries will be stimulated as well. The automobile industry is a major consumer of steel and textiles. New houses require appliances (an industry that also uses much steel), furniture, lumber and textiles, among other things.
But many an industry will take a while to work off inventories before production can increase perceptibly.
For example, the farm equipment industry has a bloated inventory--at least in relationship to sales, which have been severely depressed by the bleakest conditions on the nation's farms in more than 40 years. Before the financially strapped farm equipment manufacturers, such as John Deere and the nearly bankrupt International Harvester, will increase production, the large volume of unsold tractors and combines will have to be reduced.
What follows is a thumbnail forecast for a few of the nation's largest and most important industries:
Steel: With nearly every one of its markets in severe recession last year, the steel industry will begin to recover. During December, about 30 percent of the industry's capacity was idle. The industry is expected to ship between 70 million and 80 million tons of steel this year, compared with less than 65 million tons in 1982--when the industry is estimated to have posted a record loss of $1.5 billion to $2 billion. But 1983 will still be below 1981, and the industry is never again expected to approach the record 110 million tons it shipped in 1974.
Automobiles: Production will pick up as interest rates decline and consumers are forced to get rid of cars that have been driven too long. Automobile manufacturers, always optimistic, expect to increase their production from 5.75 million cars in 1982 to close to 10 million in 1983. Other forecasts are less optimistic, but all foresee an increase in auto assemblies as well as truck sales.
Coal: The National Coal Association predicts a small, 2.1 percent increase in coal output this year, from about 820 million tons to 837 million tons. Coal escaped the early ravages of the recession in 1981 because of foreign demand and a nationwide strike that reduced inventories. But by 1982 inventories at industries and utilities had been rebuilt and foreign demand flagged. Now inventories are bloated, and users are expected to reduce some of their stockpiled coal before increasing purchases.
Chemicals: The chemical industry has been hit hard for the last two years. The Chemical Manufacturers Association estimates that sales dropped 1.5 percent in 1982 and that profits fell 15 percent. But the trade association anticipates a rise in sales of 11 percent this year because of a general recovery in the rest of the economy.
Machinery and machine tools: These so-called capital goods industries are dependent upon other industries' investment decisions. The average industrial plant is working at less than 70 percent of capacity, and in some industries such as steel it is less than 50 percent. Even with an economic upturn in many industries, it will be years before the ability to produce goods is strained. As economist Alan Greenspan points out, in these circumstances there is little incentive for a company to replace an inefficient, idle plant with an efficient but still idle facility. The Commerce Department anticipates that machine tool shipments, which fell about 31 percent last year, will fall another 32 percent in 1983.
Construction: The home building industry will revive, but the rest of the construction industry will remain in the doldrums. Commercial buildings are begging for tenants in most cities. Plant expansion and modernization will be slow. Highway construction should pick up because of the recently enacted gasoline tax increase, which is to be funneled to public works programs for road building and rehabilitation.
Airlines: The recession and deregulation hit the airline industry hard. Braniff went bankrupt in 1982; Pan American continues to teeter on the edge of insolvency. The industry had record losses in 1982, its third year in a row in the red. Retrenchment and a pickup in air travel in 1983 should enable the nation's major carriers, as a whole, to turn a profit, according to Standard & Poor's, the securities rating agency. But another airline failure may be in the cards, analysts say.
Computers: The Commerce Department predicts that computer sales, after inflation is taken into account, will rise 18 percent in 1983 following an 11 percent gain in 1982.