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December 7, 1998

5 Min Read
How will a recession affect you?

The specifics do not matter. Some say we are already in a recession; others say it is about to start, and yet others forecast the recession to hit no later than the second quarter of next year. With most key economic data often more than 60 to 90 days old, economists often trail in their predictions compared to what has already happened in the market.

Those few who see only a temporary economic slowdown without contraction have become very much a minority. Additionally, in injection molding, some market sectors may not see any contraction, just a reduced rate of growth. Other markets-primarily automotive, industrial machinery, office equipment and consumer goods-should anticipate a minor contraction that will bring down overall growth for 1999.

The impact of the turmoil in Asia has already been felt in many molding plants around the country. Now, some molders report reduced export orders from countries such as Brazil, Mexico, and Argentina, and exports to Europe have shown far less growth than anticipated.

Add to this the fact that consumer spending-the most important locomotive of U.S. growth-is showing clear signs of slowdown. For instance, data for September 1998 show spending at department stores was down while consumers switched to less costly discount merchants. September was the second straight month that sales at many stores fell below expectations. This, traditionally, is one of the strongest initial signs that consumers are retrenching. In addition, this casts a long shadow over the strength of the Christmas sales, now widely expected to show little or no growth over 1997.

In early October, the Labor Department reported a minor rise in the number of first-time claims for unemployment, the first increase in four weeks. Home sales-still at exceptionally strong levels-have also started to slide, dropping in August for the second consecutive month by 4.4 percent as compared to July 1998.

Trade Problems
The U.S. trade deficit is rising sharply and most sources predict yet another rise in 1999 as a wave of low cost imports hits the United States. We will analyze some of the data in our annual outlook in IMM's December 1998 issue.

The U.S. trade deficit with Japan may reach an all-time high in 1998-causing a worsening of trade tensions. U.S. Trade Representative Charlene Barshefsky called it "the tip of the iceberg. It is going to get substantially worse." The trade deficit with Japan was $36.19 billion in the seven months to July, up from $31.12 billion in the same period of 1997.

Molders making car parts for export and suppliers of medical devices will be among those hit hardest by the U.S. decline in exports.

Electronics-
Strong Sales Now
The vital electrical and electronics market may hold the seeds for a quick recovery in the United States as well as some recovery late in 1999 for some of the troubled Asian economies. We do not believe molders in this market will see any contraction next year, but overall growth will slow to less than five percent in the first part of the year then grow again by as much as 10 percent towards the end of 1999 and beyond.

Even considering that more than half of the world is in recession-some would say depression-the vitality of this market remains impressive. Global sales of computer chips rose 1.5 percent in August, the first month-to-month rise this year, the Semiconductor Industry Association reported. Note that chip sales are a good indicator of how much business will come to molders making parts for any electronic device.

This positive result, showing an increase in some economic activity in Asia, came even though sales in Japan dropped 30 percent on a revenue basis from August 1997 to August 1998. The report showed modest month-to-month gains of 3.4 percent in the Americas, 0.7 percent in Europe, and 3.1 percent in Asia-Pacific markets. However, on a year-to-year comparison, global sales for August were 15.7 percent lower than those seen in August 1997.

U.S. exports of electronics were flat for the first six months of 1998, increasing a mere 0.5 percent over the same period in 1997, according to data released by the Electronic Industries Alliance. Imports increased nine percent over last year's $79.6 billion.

Car Sales Up, but Will Slow
U.S. auto sales rose 6 percent in September, mostly due to steep discounts and low interest rates. Overall, vehicle sales rose to an annual rate of 15.6 million, up from 14.6 million in August and 15.5 million in the year's first half. While this is excellent news for now-and molders say that business is holding up very well-all projections call for slower car sales in late 1998 and maybe even a drop in early 1999.

Daimler-Benz AG-soon to be DaimlerChrysler-expects U.S. car sales growth to stagnate next year while sales of its Mercedes-Benz cars rise, even though Chrysler's first three quarters were excellent. Chief Executive Juergen Schrempp said in early October he "expects very little growth in the U.S." Bernd Pischetsrieder, chief executive of BMW, this October also predicted a crisis in the world car industry in the next two or three years as sales slow in the two largest markets: Europe and the U.S.

Outlook 1999
Rather than waiting for the December issue, this time we offer some preliminary projections for 1999-see the accompanying charts. We will adjust those for the next few issues as new economic data become available to us.

The Molders Economic Index is prepared exclusively for IMM by Agostino von Hassell of The Repton Group, New York.

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