US factories on cusp of rebound

Ford and GM add to big January layoff totals, but forward indicators brighten for hard-hit producers.

NEW YORK

After suffering through one of the worst downturns in decades, the nation's manufacturers may be starting to recover.

The improvement, economists stress, is nascent, uneven, and even ambiguous. But signs are growing that manufacturers - which helped lead the nation into recession - are finally seeing order books improve.

Demand for washing machines, airplanes, and other "durable goods" is rising. And a recent survey by the Institute for Supply Management showed some improvement among manufacturing companies.

If the trend continues, it could help pull the nation out of recession by spring. Yesterday, in fact, the 52 economists surveyed by Blue Chip Economic Forecasts predicted the first official recession in 10 years would end by March.

Any positive sign will be welcomed by thousands of workers in danger of losing their jobs. In recent days, the pink slips have

been proliferating: 9,000 laid off at Merrill Lynch & Co. Huge workforce reductions are expected at Ford Motor Co. and General Motors as well. "January is one of the heaviest months for layoffs," says John Challenger of Challenger, Gray & Christmas, a Chicago out-placement company.

The continued reduction in workforces is one reason many economists don't expect the economy to exhibit a great deal of strength when it does rebound. The Blue Chip group, for example, expects only 1 percent real growth for the year.

The consumer has driven much of the growth in the past several years, while the producers of such goods as steel and autos have shrunk. In the last several quarters such companies have been reducing their inventories to reflect lower demand. Now many economists think the inventory reduction is finally over.

"We've taken $100 billion off our inventory stock since the peak in 2000, mostly in manufacturing products, and that's the best signal the worst is over in payroll cuts in manufacturing," says Mark Zandi of the Economy.com, an economic web site.

At the same time, prices of goods used in manufacturing, such as scrap steel, copper, and chemicals, have stopped falling. Last month, the total hours worked in manufacturing rose - also a good sign. "If you ask your workers to put in more hours it means you won't be cutting payroll," says Mr. Zandi.

Some companies have tightened their belts enough that they at least feel they will now survive. That's the case with Techneglas Inc., a Columbus, Ohio, manufacturer of television glass. It reduced its workforce by a third, to 1,000, last year. "This year is going to be fine," says spokeswoman Tracie Patten.

Still, economists note the improvement is relative. "Before you rise you have to stop falling," says Joel Naroff of Naroff Economic Forecasting in Holland, Pa. "Declining more slowly is a positive and that's what is happening."

Executives at Behlen Manufacturing, a Columbus, Neb., firm, can attest to that. "The last couple of months have shown a little more activity as far as quotes and hard commits go," says Bob Stachura, president of Behlen Country, a division of the agriculture-equipment firm.

At first the Behlen executives thought the improvement, which began in October, was a one month phenomenon. But it continued into November and December. "I wouldn't get too excited yet," says Mr. Stachura. "But at least they aren't coming in here with gloom and doom any more."

The recovery does remain spotty for companies. In Arizona, Ruth Stafford of Tiva Manufacturing, a producer of corrugated cardboard, says sales are off about 20 percent. "I don't think anyone around here expects any improvement for at least six months," she says.

Things aren't much better in Rock County, Wis., home of a GM truck factory and Motorola cellphone plant. Since the New Year, Motorola has announced it will layoff another 1,000 workers and GM is expected to embark on a restructuring plan soon.

Elsewhere in the county, a 100- year-old paper machine maker and a Parker pen plant shut down, helping to drive the unemployment rate from 4 percent two years ago to almost 7 percent. "The economy in Rock County is definitely under some stress," says Doug Venable, director of Economic Development for Janesville, Wis.

Those woes will likely continue for many communities associated with the auto industry. Ford and General Motors are expected to reduce production over the next several years. Foreign automakers in the US will help offset some of this. They're doing well and may add workers.

Moreover, the industry sold a near record number of cars last quarter, which has helped reduce inventories. "I think there will be a build-back in the first quarter," says David Huether, chief economist for the National Association of Manufacturers in Washington. "You'll see a major turnaround in the first quarter in autos."

Still, no one expects manufacturing to soar in 2002. Instead, it's likely to rise gradually. For example, in Fremont, Calif., Smart Modular Technologies, a memory manufacturer, says prices are starting to improve for chips. Last year, the price of memory chip modules fell from $100 to $7. Now, they are back up to $25. That's translating into increases in demand: As buyers see the prices go up, they're placing more orders.

"We're seeing a lot of sampling activity, which hopefully in the next month or so will turn into actual revenues," says Mike Robinson, strategic business manager.

Amanda Paulson and Seth Stern contributed to this report from Boston.