Economic Growth That No One Measures
What’s ahead for the 1990s? Forecasts differ wildly, between predictions of a glorious economic decade and a long struggle for the U.S. economy.
Right now, indicators for U.S. business don’t seem encouraging. Factory building is down from a year ago, according to the latest statistics, and economists say that high debt and low profits paint a gloomy picture of the ‘90s.
And yet, away from the statistics, one hears a different story, particularly--and surprisingly--from engineering companies whose business is designing and constructing the factories that the statistics say aren’t being built. As if to compound the confusion, the prices of stocks in engineering companies such as Fluor Corp., Jacobs Engineering Group and CRS Sirrine Inc. were at or near historic highs even before expectations of rebuilding from the Bay Area earthquake pushed them up a point or two.
What’s going on? More than the numbers show. In the real economy, technology and business are changing faster than traditional economic measures can reflect--and business is a lot better than gloom-and-doom predictions say it is.
“We think we’re in the early stages of a long, sustained uptick in business,” says Leslie McCraw, president of Fluor, who is listening to his customers more than to economists. “The people we’re working for are such a cross section that if they’re doing so much work, something must be happening out there that people talking about recessions and soft landings don’t know about.”
Like those of the U.S. economy, Fluor’s statistics have been better in the past. At the start of the 1980s, Fluor worked a $6-billion oil recovery project in Alberta, Canada, and $2-billion petrochemical jobs in Saudi Arabia. In 1982, the company had more than $7 billion in revenues and net profit of more than $150 million.
Then the bottom dropped out of energy and Fluor hit hard times. Last year, the Irvine-based company had $5 billion in revenues and net earnings of $56 million--its first profit after three years of losses.
Yet Fluor is healthier today than a decade ago. In the fiscal year ending Oct. 31 it may earn about $100 million, analysts estimate. Its backlog of engineering and construction work is now $8.2 billion--at its highest level since 1982--but it is spread across scores of jobs, not concentrated in a few megaprojects. Fluor is designing and building a cereal plant for Kellogg in Memphis, a disposable-diaper plant in Saudi Arabia, a plastics plant for General Electric in Spain, a paper mill in South Carolina.
It has roughly the same number of engineers that it had in the early 1980s--18,000--but their livelihoods are no longer dependent on the price of oil, or even on geography. “If we get a job in Dusseldorf,” says McCraw, “telecommunications and three-dimensional CAD allow us to do the work where we have the skills, whether in Greenville, S.C., or Houston or Melbourne.” The letters CAD (computer-aided design) refer to three-dimensional computer images that are to the blueprint what the jet plane is to the bicycle. With CAD and a telephone line, Fluor and other engineers can do more and better jobs in more places.
The plants that Fluor works on have also changed. Take oil refineries. Statistics show that no refineries have been built in the United States in decades, yet more oil is refined every year because processes and equipment in existing plants have been so improved “that they’re now operating at 150% of their original capacity,” says McCraw, 56, an engineering graduate of Clemson University.
What Fluor does in refineries today is replace pipes and high-pressure vessels when they wear out, but in the replacement there is improvement, perhaps to produce the cleaner-burning fuel now being offered to reduce air pollution. “There’s a lot of business in refineries today,” says McCraw, but it’s questionable whether all that business is reflected in statistics that see no expansion going on and picture, instead, an economy that is marking time.
And the future is going to be even stranger, says McCraw. With hospital-type computerized structural scanning technology, Fluor will analyze the components of a plant or system to determine when parts will wear out, and replace them before they do. “If it ain’t broke, do fix it” will become the watchword, with avoidance of breakdowns yielding an economic benefit.
The point, of course, is that the world is changing, and so must our understanding. If a project in Dusseldorf can be worked on in Houston, then traditional measures of exports and imports don’t reflect the new reality. But if we think that they do, we get all hung up and make dumb decisions either in national policy or our own economic lives.
What’s ahead? “My customers talk of building for new markets in Europe, the Pacific Rim, the Soviet Union,” says McCraw. “For the 1990s, we see change more rapid than anybody has ever seen, and we want a company that can deal with change and not be frightened of it.” That’s a better forecast--and better advice--than gloom and doom any day.
