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Influential Trade Group Predicts Recession

December 12, 1990

NEW YORK (AP) _ A prominent trade group predicts the nation will dip into a recession next year, but says export growth and a strong dollar will brighten the economy by next summer.

The National Association of Purchasing Management issued its semiannual economic forecast Tuesday. It matches the views of many financial analysts who say the economy has entered or soon will slip into a recession.

″The only difference I have with them is my recession has already started,″ said Edward J. Campbell, senior economist with the investment firm Brown Brothers Harriman & Co.

The trade group, which is composed of purchasing managers at manufacturing companies nationwide, reported its members were ″extremely pessimistic″ about the economy for the first half of 1991. The association conducts regular research on the economy, including a monthly survey of its members.

″Although pessimistic about a recession in 1991, purchasers expect a recovery to begin in the later half of the year fueled by continued relatively strong growth in exports and a declining trend in inflation,″ said Robert J. Bretz, chairman of the association’s business survey committee.

Overall economic growth will be 2.2 percent next year, with costs for wages and benefits rising 4.2 percent, the report predicted.

The association also dramatically cut its forecast for capital spending in 1990. In May, it predicted an 8.1 percent increase in capital spending this year. Now it has reduced the growth estimate to 1.4 percent.

The group’s purchasing managers index for November, first reported last week, stood at 41.3 percent - its lowest point in eight years. The index, developed in conjuction with the U.S. Commerce Department, gauges production, employment, new orders, vendor performance and inventory.

Companies surveyed also reported they are operating at only 82 percent of their normal capacity, down from 85 percent a year ago.

Mild inflation is forecast, despite the recent runup in oil prices spurred by the Persian Gulf crisis.

″It sounds like a pretty good and standard forecast for next year,″ said Mike Penzer, senior economist for Bank of America in San Francisco.

Penzer agreed with the group’s prediction of export growth and a stronger dollar next year. But economist Lacy Hunt disagreed with the association’s forecast that the economy will expand through enhanced trade.

″Exports are not going to be the panacea that we hoped for,″ said Hunt, chief U.S. economist with the Hong Kong Bank Group Inc. in New York.

The softening economies in Japan and Germany mean there will be ″a smaller pie in which to generate these exports,″ he added.

Several analysts agreed with the association’s prediction of a short-lived recession. Giulio Martini, economist for the investment firm Sanford C. Bernstein & Co. Inc., said prospects for a faster economic rebound are enhanced because businesses aren’t burdened with large inventories. Overbuilt inventories accelerate the shock of a recession, he said.

The 40th semiannual forecast is consistent with the association’s earlier predictions of economic hard times. In its report last week, the group said the economy continued to decline for the fifth consecutive month, leading to a drop in new orders and declines in production and employment.

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