Worst economy in 20 years? Interesting reading from Atlanta:
The economy may not be in a recession, but Caraustar Industries Chief Executive Thomas V. Brown regards the current downturn as the worst in 20 years for his industry.
"We have been in a recession for the last 10 months in the sense that industrial production has declined in that period. But we have been in a no-growth mode for about two years," said Brown, who sees his company's business as a leading indicator of economic trends.
Caraustar Industries makes paperboard for packages, folding cartons and other containers --- items that businesses need to do business.
Brown is not alone in seeing the year-old downturn as worse than the numbers suggest --- and also worse than the recession of 1990-91. That was the last "official" recession, defined as at least two consecutive quarters of economic decline.
If Georgia State University economist Rajeev Dhawan is right, 1990-91 will remain the last official recession. He expects the United States will escape a recession and the economy will begin to recover late this year.
He sees the second quarter as the bottom of the yearlong slide, when gross domestic product grew at an estimated annual rate of only 0.7 percent. That was the slowest since the second quarter of 1995.
"I am optimistic about the recovery in the economy in late fall/early winter in spite of all the doom and gloom news," said Dhawan, director of the GSU Economic Forecasting Center, in releasing his third-quarter forecast on Thursday.
Dhawan may be right about the start of a second-half recovery, but the attitude of a corporate executive these days is more likely to be: "I'll believe it when I see it."
"Our perspective does not suggest a recovery this year," said Brown, of Caraustar Industries.
Even when they are more optimistic about the near-term outlook, executives are likely to be subdued with their expectations.
"We are assuming the economy will get slightly better toward the end of the year but with no dramatic pickup," said Jerry Nix, executive vice president/finance at Genuine Parts, which distributes auto replacement parts and manufactures industrial components.
In this environment, cost cutting --- often a euphemism for layoffs --- is essential in business operations.
The unemployment rate has steadily risen from a low of 3.9 percent late last year to 4.5 percent. Dhawan looks for unemployment to rise to 5 percent in the fourth quarter and early next year, then plateau just below 5 percent through 2002.
"For the most part companies initially tried to be defensive, to hold on to permanent employees. But as the slowdown worsened, I would say profits took precedence over people --- and that became especially true of public companies subjected to earnings pressure," said David Dunkel, chairman, president and chief executive of Kforce, a Tampa-based contract staffing and temporary help firm.
That was certainly the case in the telecom, semiconductor and computer software sectors --- hotbeds of the stock market's dot-com, "new era" euphoria that ended in last year's high-tech stock crash.
But Dunkel said employment has held up well in some sectors, especially health care fields such as pharmaceuticals and biotechnology.
Executives at Roper Industries, a diversified Bogart-based industrial company, make the same point about the economy's mix of strength and weakness.
"Manufacturing is suffering, but the economy has hurt specific sectors more than others," said Christopher Hix, Roper's director of investor relations. "We get much of our revenue from oil and gas markets, which have been strong this year."
Roper's semiconductor and automotive markets are another matter.
Hix said Roper adopted a strategy of diversification 20 years ago to protect itself against cyclical swings by having countercyclical operations as well. And it is paying off.
That very mix of strengths and weaknesses is the basis for Dhawan's "growth recession" forecast.
"In a recession we have an outright decline in personal income, industrial production and non-farm employment of substantial magnitude," said Dhawan. "Here the evidence is mixed. Industrial production is down, job growth has stalled but incomes are still growing."
He said the Federal Reserve's interest rate cuts and the tax rebates will stimulate spending.
Now it's up to consumers and businesses to spend, not panic, he said.
"Psychology is an important component in the current scenario," said Dhawan. "There is light at the end of the tunnel provided we consumers don't lose our cool."
Dhawan forecasts the economy, as measured by gross domestic product, will grow 1.6 percent in 2001, 2.7 percent in 2002 and 3.1 percent in 2003 Dhawan has good reason to stress consumer spending, since it drives two-thirds of the economy. And it, too, has slowed.
"This year has been as challenging as any period we have faced in the past decade," said J. Hicks Lanier, chairman and president of Oxford Industries, an Atlanta-based apparel manufacturer. "Despite heavy price promotions at retail, sales have been lackluster across most product lines."
Russell Corp., which makes sports apparel and athletic uniforms, has also felt the cutback in consumer spending. The company has announced it will close two plants and shut down some other operations in Alabama affecting about 775 workers.
But Robert Martin, Russell's senior vice president and chief financial officer, said the company is moving forward with previously announced restructuring plans, which include introducing new products.
Indeed, the economy has not necessarily been a deterrent to companies going ahead with long-range plans. They perceive the slowdown as a temporary setback.
"Our development plan for the year remains on track with 13 restaurants opened and nine currently under construction," said Philip J. Hickey Jr., chairman and chief executive of Rare Hospitality, an Atlanta-based company that operates LongHorn Steakhouse and other chains.
Even so, what will have to happen to convince business executives that the economy really is getting better?
"We will have to see a substantial period of time when there is growth in unit volume in our business," said Caraustar's Brown.
Until then, he said, the company's paper mills will not get back to running full time.
However, most observers warn against expecting a return to the kind of heady, productivity-driven economic growth that occurred for much of the 1990s.
"We enjoyed a euphoric ride the last couple of years, but now must make peace with an economy returning to normalcy in the near future," said Dhawan.
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