Manufacturers Optimistic on Trade, Expansion : Survey: Chief executives say they expect to hold their own on exports and see little chance of a recession before 1991.
Disagreeing with economic predictions of rising trade deficits and a declining economy, U.S. manufacturers expect to at least hold their own in sales abroad next year and see little chance of a recession before 1991, the National Assn. of Manufacturers said Tuesday.
“The conventional wisdom, which seems to change every month, says trade improvement has stalled,” said NAM President Jerry J. Jasinowski. “But we see a $15-billion improvement in net exports next year.”
A recent poll of 53 industrial chief executives--a cross section of manufacturing companies represented by the industry group--showed that only 2% expected lower exports for their firms in 1990 than in 1989. Fifty-six percent expect their exports to remain the same same, and 42% see higher exports. Early this year, a similar poll showed 44% expected higher exports for their firms in 1989, while 54% expected to sell about the same as in 1988, a year of sweeping trade improvement.
At the same time, 61% of the participants, who were polled Oct. 25, say they believe that the 8-year-old expansion can survive into 1991 “or later.” Only 21% are battening down for what they expect will be a recession early next year, with the remaining 18% expecting contraction in the second half of the year. Last February, more than half expected a 1990 recession, and only 36% thought the expansion could run on into 1991.
The NAM poll results have been fairly optimistic for several years and also unusually prescient compared to more jaundiced academic and market economists. In presenting the results, Jasinowski praised the “realism” of manufacturing executives, whose responses are based more on their own bottom-line assessments of their companies.
The poll also showed that executives remain worried about the federal deficit and the expansion of debt in the private sector. But they are more concerned with developing new products and improving the training of their labor force than with actions that government might take.
Reduction of the federal budget deficit stood only third on the wish list, while at the bottom of the list were calls for government export incentives, a devalued dollar and other nostrums familiar on Capitol Hill.
“The government is too slow to respond to the changing dynamics of international competition,” Jasinowski said. “The government can’t even keep up with the conventional wisdom, let alone keep up with a company like Motorola developing new cellular telephone technology.”
“Contrary to what they hear from economist gurus, the manufacturers are asking for exchange rate stability, not central bank intervention to drive down the dollar to make it more competitive,” Jasinowski explained. “They don’t think governments can manipulate exchange rates to the extent that some economists think they can.”
In the poll, 49% agreed that central banks should aim for stability, not a cheaper or a stronger dollar. Only 16% want the dollar to be pushed down to lower a trade deficit which showed signs of ballooning again in the third quarter. Measured in GNP terms, net exports deteriorated at an annual rate of $22 billion (1982 dollars) in the third quarter, after several years of improvement. In 1989 dollars, trade is on track, with a projected deficit of some $110 billion this year, compared to $118.5 billion in 1988 and $152.1 billion in 1987.
Several economists, such as Harvard’s Martin Feldstein, MIT’s Paul Krugman and former Carter Administration official C. Fred Bergsten, for years have called for a weaker dollar, while even the Bush Administration Treasury has begun to despair of trade improvement after this year. But the manufacturers, Jasinowski said, are confident that orders from Western Europe, in particular, will hold up next year and help net exports by as much as $15 billion in 1990.
“Market growth there has been fabulous, and if their economies keep growing, that should continue,” he said.
The manufacturers would be happy to see the Federal Reserve Board lower interest rates, Jasinowski said, but not to the point where inflation would return. “They were all badly burned the last time inflation got out of control,” he noted.
Accordingly, 60% of those polled, faced with a choice between easy money and inflation, compared to a more restrictive policy and continued vigilance against inflation, chose the latter, “even if it means a restrictive policy that leads to higher interest rates.”
Finally, the “realists” of the corporate world are also skeptical of a Wall Street where traders driven by highly leveraged debt financing and computer-driven arbitrage programs can kill 190 points from the Dow Jones industrial average in a couple of hours.
“They think the markets today have almost nothing to do with the real economy,” Jasinowski observed. The participants blamed the Friday the 13th market scare primarily on program trading, takeover speculation and junk bonds. At the bottom of the list was a concern that stocks are fundamentally overvalued or that a corporate profits squeeze will drastically slow the economy.
Indeed, the NAM participants seem confident that the cost push that has led many market economists to predict lower profits can be contained this year. An unexpected 61% of the poll participants said they expect pressures for higher wages to dry up by year-end. Thirty-five percent expect moderate employment cost increases.
Against that background, plans for 1990 investment are similar to 1989 plans projected last February: About a third say they plan no increase in capital investment, while 29% say they will expand investment by “substantially more than 5%.” Twenty-one percent plan to expand by about 5%.
