US smokestacks fire up for '84 gains

By , Staff writer of The Christian Science Monitor

The outlook for America's smokestack industries is not as grim as it appeared this week when US Steel Corporation announced major cuts in its production capacity and work force.

In fact, the fortunes of old-line industries - steel, machine tools, automobiles, and chemicals - are expected to be better next year than in 1983.

''For most of these industries 1983 was not a good year,'' says Priscilla Luce, an economist at Wharton Econometric Forecasting Associates. Because of weak sales at the beginning of the year, most posted declines in annual production figures and other key indicators, she notes.

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''1984 will be a significantly better year for most sectors of heavy American industry,'' says Jerry Jasinowski, chief economist at the National Association of Manufacturers. The bottom line will be fattened by modestly better sales as the recovery continues and by continued cost cutting, he says.

''All of them will do considerably better than they did last year,'' but without hitting the sales peaks achieved in the 1960s and 1970s, adds John Cremeans, director of research at the Commerce Department's Bureau of Industrial Analysis.

But further dramatic - and economically painful - steps to streamline key industries are expected. Despite the improvements forecast for 1984, United States heavy industry still is like ''a sick man who is smiling today when yesterday you couldn't get any response,'' Mr. Cremeans contends. ''He is not getting up and running around.''

The start of 1984 finds many firms in the smokestack industries beset with costs higher than their international competitors and with technology that is less advanced. At the same time, the gradual shift in the economy toward less material-intensive, high-technology products has left many old-line firms with large amounts of excess productive capacity.

And the dollar's high value has made export sales even more difficult to land. In fact, in November the US bought some $7.5 billion more than it sold, the second worst monthly trade deficit on record, the Commerce Department reported yesterday.

So US Steel's decision to restructure by trimming its potential output by about 20 percent - eliminating 15,400 jobs in the process - ''will take place in other parts of smokestack industry'' as well as at other steel producers, predicts Peter Ziesmer, industrial group vice-president for Data Resources Inc., an economic consulting firm.

''The restructuring of American industry which began in 1980 will continue for at least the next two years,'' says economist Jasinowski says. In their bid to cut costs sharply and become internationally competitive, firms will continue ''shutting down plants, reducing the amount of employment, and cutting overhead costs,'' he says.

The continued restructuring is expected to trigger an increasing number of linkups - either mergers or joint ventures - between US and foreign firms. ''We have got to begin to look at these markets globally,'' Mr. Ziesmer says. However , US Steel announced this week it is dropping discussions with British Steel Corporation to import semifinished steel for the American firm to finish here, a venture which would have enabled it to close out an inefficient production line at its Fairless Works near Philadelphia.

Analysts also expect more mergers between US firms like the pending steel-industry linkup between LTV Corporation and Republic Steel. The deal, which still must be approved by the government, ''is widely assumed to involve a reduction in the total capacity of the two companies,'' says a steel industry official who asked not to be named.

Smokestack firms, under pressure to hold down costs, may temper their willingness to invest in major modernization programs. That could hurt their chances of becoming internationally competitive. Total US capital spending is expected to rise only 3.5 percent in the first six months of 1984, after adjustment for inflation, the Commerce Department says. During the past 20 years , US capital spending as a percent of the country's GNP (gross national product) has been less than in Japan, Germany, and the United Kingdom, Wharton Econometric figures show.

At the moment, Mr. Jasinowski says, smokestack firms in general are investing to improve current facilities rather than to expand their capacity.

While analysts agree on the overall outlook for heavy industry, each industrial sector has somewhat different prospects. For example:

* Steel industry production is expected to climb to an estimated 95 million tons in 1984 - up from this year's 84 million tons. While this is progress, it is still far below the 137 million tons sold in 1979.

''I think you will see a tremendous amount of consolidation'' as the industry tries to get costs in line with foreign firms, Ziesmer says. For every dollar of GNP, the nation is using fewer pounds of steel: ''The steel industry will never be quite the same,'' says Wharton economist Luce.

* Machine tool shipments (expressed in 1982 dollars) will rise to $2 billion in 1984, up from $1.73 billion in 1983 but far below the $5.5 billion shipped in 1981, according to Joseph Franklin, statistical director at the National Machine Tool Builders Association. However, orders received in 1984 for shipment in 1985 are expected to rise 70 percent, he says.

Still, foreign competition and a large supply of used equipment hurt the industry's prospects. And because machine tools are used to form metal, ''If steel is down, machine tools will be, too,'' says Commerce analyst Cremeans.

* The automotive sector is in the best shape of the old-line industries, analysts say, due to aggressive cost-cutting programs and help from quotas on Japanese imports. Arthur Davis, auto analyst at Prescott, Ball & Turben in Cleveland, sees 1984 car sales of 10 million vs. 9 million in 1983. US makers will get 7.6 million of these units in 1984 vs. 6.8 million in 1983.

* The chemical industry has already shut down some excess facilities but still is operating far below capacity, despite recent sales increses. A further shakeout is coming, when the Mid East's energy-producing countries get their petrochemical production plants on stream, says Data Resources' forecaster Ziesmer.

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