Economic Worries? Expect ‘Rolling Recessions’ : Manufacturing: The economy still has ups and downs. But some analysts believe that for every industry or region that is down, another will be up.

In Washington, the pundits are still talking recession, and Wall Street has a bad case of jitters. But Jack Caroway doesn’t see it that way.

Caroway is manager of Springs Industries’ Elliott plant here, one of the most efficient in one of the nation’s largest textile companies. Crammed with state-of-the-art automated weaving machines, the plant spews out 500,000 yards a day of unfinished cotton goods--miles-long sheets of fabric waiting to be cleaned, colored, cut and shaped. The plant runs 24 hours a day, seven days a week, and Caroway says there are no plans to cut back.

The textile business, thriving at a time when many other manufacturers are slumping, suggests that something new is happening as the economy moves into the 1990s.

No longer, some analysts believe, do recessions strike most of the manufacturing sector simultaneously. Instead, the old-fashioned kind of downturn may have given way to a series of “rolling recessions” that hit some regions and industrial sectors even as others keep going strong.

The traditional business cycle of ups and downs still governs, according to this view. What has changed is that the cycles for different industries are out of phase. For every industry that is down, another is up.

“Even in 1982 you had some states, like California, that adjusted fairly well while the Midwest and the East got hammered,” said University of North Carolina economist James F. Smith, president of the National Assn. of Business Economists. “The last recession we had that clobbered everybody was back in 1974-75.”

Innovators Lead

Since the early 1980s, the engine of U.S. industrial growth has shifted from the traditional Fortune 500 companies to smaller, more innovative and flexible companies--many of them high-tech firms--that create new markets with new products. The older industries that have prospered are the ones that have restructured, discarding their monolithic bureaucracies and becoming more like the smaller upstart companies springing up around them.

“In early ‘80s, it was the smokestack industries that got restructured,” said Jerry Jordan, chief economist of First Interstate Bancorp in Los Angeles. “More lately it has been retail, airlines and financial services that have been getting squeezed and reordered. . . .

“It’s like a car engine: The last thing you want is for all the cylinders to fire at once, then spin without any power through three cycles,” Jordan said. “But before, we had no choice. The economy was more like a one-cylinder, two-stroke engine. Now the economy has more flexibility.”

The increasingly global marketplace also helps, Jordan said. When American consumers are not buying, manufacturers can now look overseas for customers.

Just as important is credit deregulation. Until the early 1980s, the U.S. government regulated the interest rates that banks and savings institutions could pay depositors. Money poured out of these institutions when higher rates of return could be found elsewhere, leaving banks and S&Ls; with little money to lend.

“When rates went above the ceilings, money flowed out of the banking system, the lending windows all closed and the economy was stopped in its tracks,” said John Hekman of Claremont Economics Institute.

But with deregulation, money no longer poured out of banks and S&Ls; every time rates of return rose elsewhere. The banks simply pushed their own deposit rates higher. The dread “disintermediation”--the unavailability of credit for investment and growth--became merely a bad memory. And junk bonds became an important new source of credit for many companies that might otherwise have stagnated during the interest-rate peaks of 1984, 1986 and 1989.

“In the old finance system, disintermediation would clobber housing and almost every other sector whenever you had a down cycle,” Jordan said.

Since the 1981-1982 recession, various industrial sectors have suffered through periods of hardship.

Initially, industries that competed with foreign producers continued to suffer from the highly valued dollar, which artificially lifted the price of their goods relative to foreign products. The recession lingered on in much of the smokestack Midwest, and unemployment stayed at near-Depression levels in Pennsylvania, Ohio and Michigan.

Then, as the dollar fell and exports picked up, the Midwest recovered. But a global energy glut punished petroleum prices, and the oil patch fell into a slump from which some states, such as Louisiana, have still not recovered.

Now, at the start of the 1990s, the pattern is continuing. Textile manufacturing, until recently one of the nation’s most antiquated and uncompetitive sectors, now stands in stark contrast to, say, the automobile industry, where even huge rebates have failed to spur sales.

And the computer industry is cooling just as textile manufacturing heats up. Worldwide, computer industry growth has slowed to 8% to 10% a year in the last three years--not bad, but down from the heady 15% rate of the previous 25 years. U.S. firms cut back their work forces by 40,000 in 1989 alone.

The Wang Story

Lowell, Mass., has felt the sting. Having discovered new prosperity in computers after its textile industry relocated several decades ago to the non-unionized Southeast, Lowell is learning all over again that good times are not forever.

It was Wang Laboratories that helped revitalize that derelict mill town, whose unemployment rate fell to a barely perceptible 2% toward the end of the 1980s. Now it is Wang that is responsible for its downturn.

Wang, which employed only 3,000 persons when it moved its headquarters and most of its manufacturing operations to Lowell in 1976, reached a peak of 31,600 workers in 1985. Today that number is 22,500 and still falling.

A local electronic clock manufacturer has reportedly received 2,000 job applications from former Wang employees. Joblessness in Lowell is back up to 5.8%, and trendy boutiques stand empty in shopping malls built from converted textile factories.

What is happening to Lowell is happening all along the high-tech Route 128 belt around Boston. Data Resources Inc., the Lexington, Mass., forecasting firm, pronounced the Massachusetts economy in a regional recession last summer.

“High-technology industries in the past have not had to worry about the business cycle very much,” said David Wyss, a DRI economist. “But it’s cyclical after all, just like any other capital goods industry. In the past, computers were growing so fast that the industry could ignore cycles. Now the industry is more mature, profit margins are slimmer, growth is less.”

Smith added: “Eventually every industry has cycles, even computers, which people thought would not have cycles.”

But even within high-technology manufacturing, some segments are at the top of the cycle while computers slide toward the bottom.

Teradyne Inc. of Boston, one of the nation’s oldest and biggest manufacturers of high-end electronic testing equipment, has continued to prosper by diversifying and creating new markets.

“Some of these computer companies, like Wang, have suffered badly from strategic problems,” said Teradyne Vice President Frederick Van Veen. “In the past, we’ve been hit hard by cycles. We’ve seen sales fall as much as 30% in past recessions. So we diversified. This time, with a recession in the computer industry, we’ve had no drop in sales, no drop in employment.”

Teradyne sells nearly half its product overseas, much of it to Japan. New customers both here and abroad are manufacturers in consumer electronics and telecommunications, and high-end semiconductor and chip manufacturers that supply those industries.

As a consequence of success stories such as this, Massachusetts’ unemployment rate is still only 4.5%, well below the national average of 5.3%.

And except for Lowell and a few other towns, even the computer industry’s slump has had only a relatively modest effect.

“The last four years, which produced work-force reductions throughout the computer industry, have actually helped some of the smaller and mid-sized high-tech companies--which simply picked up the talent,” said Christopher Anderson of the Massachusetts High Technology Council. “It has kept employment high among engineers and people like that.”

This pattern of diversification can be tracked across the manufacturing landscape, in sector after sector and region after region. Nowhere is this more clear than in the textile industry of the Southeast.

Over the past 10 years or so, vanguard textile companies such as Springs have closed older plants, upgraded the survivors with hundreds of millions of dollars in new spinning, weaving and finishing machinery and staffed them with a drastically reduced work force.

Most of those who left are believed to have found jobs elsewhere in the Piedmont region of North Carolina and South Carolina, where unemployment has held under 4% for several years. Those who stayed are in upgraded jobs, carrying more responsibility, controlling more machines and earning better pay.

Low-wage countries such as Taiwan, South Korea and the Philippines still have an advantage over U.S. companies in the production of lower-quality goods. That is why Springs and other U.S. companies are aiming at the higher end of the value spectrum. Springs Vice President Robert L. Thompson Jr. says his company is competing not with low-wage Asian countries but with high-tech producers in West Germany, Italy and Japan.

Textile manufacturers and the automobile companies had much in common two decades ago. Both were tradition-heavy, bureaucratic, wedded to old ways and old technologies.

But in the early 1980s, Thompson said, the textile industry embraced new weaving and finishing machinery.

New Technologies

“Until the early 80s, textile weaving, finishing and dying equipment hadn’t really changed much in 100 years,” Thompson said. “We’re now in our seventh year of high investment, and it’s still continuing. So far, it’s been $700 million.”

In addition to the investment in new plant and machinery, Springs also acquired another textile company, M. Lowenstein Corp., which is best known as the manufacturer of Wamsutta products.

“When we expanded in the ‘80s, we combined two work forces,” Thompson said. “But if you took constant numbers based on the work force before the mergers, the labor force has drawn down 20% while sales have more than doubled.”

Springs and its larger competitors in the Carolina textile region have worked a virtual revolution in the cloth fabrication business. Once one of the dirtiest, most dangerous manufacturing processes in U.S. industry, it is now notable for its relatively clean and modern production line.

Gone from the mill towns are the workers’ cottages and the company store, the legions of low-wage Appalachian spinners and piece-work part-timers--the “lint-heads” of H. L. Mencken’s contemptuous characterization. Average production-worker wages run about $11 an hour, Thompson said--still well below union levels in the Midwest and Northeast, but nearly double the old standard.

“That’s a primary result of the new technology,” Thompson said. “Wages have been raised substantially, but the requirements on the job have gone up as well.”

At Jack Caroway’s Elliott plant in Fort Lawn, 270 late-model airjet looms, many controlled by computer circuit boards, produce about 25% more high-quality cotton and blended broadcloth than the 646 shuttle looms the plant had when it was built in the early 1960s.

The plant now employs 242 people, including maintenance men, spinners, weavers, “fixers” and production engineers. Before the restructuring, the plant employed more than 300.

Caroway, who grew up in the industry, recalls visiting a weaving plant as a young boy with his father. The noise was deafening, he said, and lint hung so heavy in the air that “you couldn’t see the loom next to you.” It was so hot that weavers placed buckets of cold water on the floor near the looms and draped soaked paper towels over their heads and necks.

Now a computer at Caroway’s plant controls the temperature and humidity.

Caroway said the Elliott plant, the company’s most efficient, has produced at an average of 85% of its round-the-clock capacity. “Last year, we hit 95.7%, and we’re aiming higher,” he said. “Years ago, if you got 86% in a plant, you were walking on water.”

MANUFACTURING WINNERS AND LOSERS Growth in output from 1988 to 1989 and change in unemployment from December, 1988, to December, 1989

Durable Goods Output Jobs Metalworking machinery 8.2% 2.6% Scientific, measuring, medical instruments 5.6 0.9 Electronic equipment, components 3.8 -0.8 Fabricated metal products 3.1 -1.5 Household appliances 2.2 -7.2 Aircraft and parts 1.6 2.0 Computers NA -0.7 Motor vehicles and parts -0.6 -5.1 Basic steel products -0.7 -2.1 Communications equipment -4.2 -5.5 Non-Durable Goods Output Jobs Printing and publishing 9.2% 2.0% Chemicals, chemical products 5.5 2.2 Textiles 5.2 -0.6 Drugs, pharmaceuticals 2.1 4.3 Oil refineries 0.6 1.3

Sources: Federal Reserve Board, Bureau of Labor Statistics