U.S. industrial outlook 1985: a year of industry growth

U.S. INDUSTRIAL OUTLOOK 1985: A rear of Industry Growth

One of the best book bargains for business just reached government bookstores--the 1985 U.S. Industrial Outlook. Filled with data and forecasts for more than 350 industries, this 700-page book is the biggest and most complete edition in the Outlook's 26-year history.

At $15 per copy, the 1985 Outlook provides the user with the compiled work of more than 100 industry analysts in the International Trade Administration of the United States Department of Commerce. It is found in most business libraries, and in the bookcases of investment managers, marketing and corporate strategy executives, advertising managers, and even in the briefcases of the sales force, where it can be a valuable sales tool.

This year more coverage has been devoted to service industries, and emerging industries such as videotex and teletex services, composites, ceramics, biotechnology, and robotics. Computer-aided design and munufacturing are covered for the first time. The analytical material has been upgraded and more comprehensive statistics are offered.

The Outlook is a basic reference for information on industrial growth and trade. Nowhere else is there a record of such detailed information over a 12-year span. The Outlook is useful in marketing planning and development, corporate planning, merger and acquisition searches, and business research.

The growing importance of international competition and world markets in developing a forward-looking program for supporting U.S. industries led to the relocation of the Outlook staff and industry analysts from the former Bureau of Industrial Economics to the International Trade Administration. The result has been a broadening of the Department's capabilities in industrial analysis.

A ranking of 209 of the manufacturing industries by their prospects for the year ahead shows that about 8 percent of them are expected to grow at a rate of 10 percent or better. The industry with the best year-ahead growth prospects, electronic components, should grow at a 37 percent annual rate, according to the forecast in the Outlook.

About one-quarter of the industries are expected to show shipment increases of between 5 and 10 percent. Overall, 85 percent of the industries will expand in the year ahead, in the opinion of the industry analysts writing in the Outlook. All their forecasts are made in constant 1972 dollars, to show "real' growth, free of the distorting effect of inflation.

The forecast growth rates, though modest in comparison to the recovery year of 1984, will still exceed historical rates for about 70 percent of the manufacturing industries. In some cases, such as primary metals, the high forecast rates reflect only the recovery from a low shipments base in 1984, and not real long-term growth. The ranking tables in the Outlook include historical data to give the user perspective in evaluating the forecasts.

A comparison of manufacturing growth between 1984 estimated and 1985 projected indicates that:

Approximately the same number of industries will grow at a rate equal to or greater than GNP in 1985 (82) compared to 1984 (79).

Approximately the same number of industries will experience positive or zero rates of growth in 1985 (181) compared to 1984 (186).

The number of industries projected to grow to 10 percent or greater will be significantly less in 1985 (17) compared to 1984 (54).

The number of industries projected to grow between 5 and 10 percent wll be slightly less in 1985 (52) compared to 1984 (67).

The number of industries projected to grow between 0 and 5 percent will be significantly higher in 1985 (112) compared to 1984 (65).

These changes are attributed to the slower growth in projected GNP coupled with the fact that the recovery has proceeded to the point where most industries are moving in tandem with the economy as a whole.

When the 209 sectors covered in the Outlook are aggregated to the 2-digit SIC code level, a comparison of the growth rates shows:

All sectors will experience a moderating rate of growth except for primary metals. Most of the growth in primary metals represents a turnaround from an extremely depressed base rather than a fundamental change in their prospects.

Consumer durables, construction materials, and motor vehicles are following the moderating growth typical in the advanced stages of a recovery. Pent-up demand resulting during the recession of 1981-82 has been satisfied by the recent robust recovery and sales should moderate accordingly.

Continued strong growth in SICs 36 and 35 is due to the strong demand for computers and related equipment and the incorporation of semiconductors and related components into all manufactured products.

Manufactured Growth Leaders

Table 1 shows the top 20 manufacturing industries ranked by 1985 forecast growth rates with 1984 and long-term data shown for comparison. All are on the basis of constant dollars. Each of the following industries had growth rates significantly exceeding the growth in GNP during the 1972-82 period and is projected to have good growth to 1989.

Semiconductors and Related Deivces-- Real value of shipments for semiconductors and related devices will increase 37.5 percent in 1985, with shipments approaching $24 billion. This is down slightly from its 44.2 percent increase in 1984. Rapid technological progress resulting in increased capability and decreasing prices has led to applications in all areas, particularly telecommunications, robotics, instrumentation, and consumer products. Trade in this are a is very intensive, with imports projected to reach $9.5 billion and exports $6.5 billion in 1985. While the United States has maintained its edge in microprocessors, the Japanese have been successful in dynamic random access memory, overtaking the Americans in 64K and assuming an early lead in 264K. The trade imbalance with Japan in 1984 is estimated at $1.5 billion, accounting for almost two-thirds of the worldwide U.S. trade deficit. Rapid innovation has not only resulted in a base of standardized products but also given rise to new businesses providing custom and semicustom circuits. The relative importance of U.S. offshore production declined for the first time in 1984 with the investment in state-of-the-art automated facilities in the United States. Growth is projected at 25 percent in real terms to 1989. Intense government and industry research both in the United States and abroad will make this a very competitive area.

Electronic Computing Equipment--Shipments of the U.S. computer industry are projected to increase by 17 percent in 1985 to about $62 billion. While exports are expected to increase by 30 percent, the value of imports is projected to increase almost three times as much, reducing the trade balance from $5.4 billion in 1984 to $2.1 billion in 1985. Continued acceleration of imports at this rate could put the U.S. trade surplus into a deficit by 1986. Long-term prospects, while favorable, will be affected by the evolution to high-volume standardized products resulting in requirements for cost reduction. Widespread efforts of foreign governments to assist in the development of local computer industries through such policies as market reserves will have an increasing impact on U.S. exports.

X-ray and Electromedical Equipment-- Shipments by the X-ray and electromedical equipment industry are projected to increase at the same 15.4 percent rate in 1985 to over $7 billion and are expected to continue at this rate to 1989. Electromedical products are accounting for an increasing share of shipments, at the expense of X-ray equipment. This industry exports about 19 percent of shipments, and exports and imports are projected to be in balance for 1985. While hospital cost-containment regulations may put pressure on this industry, demand for health care services and equipment is expected to increase as a result of an aging population and medical advances. Technological innovation is expected to produce newer and more cost effective products resulting in product obsolescence, as in the replacement of CAT scanners by magnetic resonance imaging devices.

Electronic Connectors--Real value of shipments will increase 6 percent, reaching over $3.4 billion in 1985. A positive balance of trade of $123 million is projected for 1985. Demand for computers, communications and defense electronics should provide an 8 percent annual growth rate through 1989.

Lithographic Platemaking Services--This industry, which primarily makes lithographic (offset) printing plates, has exceeded the growth rates of all other industry groups within the printing, publishing and allied industries since 1972, when Census Bureau data were first collected. The value of shipments for 1985 is projected to increase by 3.8 percent, down from 6.1 percent in 1984. Long-term growth to 1989 is projected at a 4 to 5 percent compound annual rate.

Electronic Components--Real value of shipments in 1985 of this broad category of products ranging from printed circuit boards to bubble memories is projected to grow by 6 percent, exceeding $20 billion. Imports are projected to exceed exports by $558 million in 1985, up from $525 million in 1984. Emerging segments such as bubble memories are projected to grow at a more rapid rate than the other segments. While not equaling its previous growth rate, this segment is projected to grow at 6.5 percent through 1989.

Radio and TV Communication Equipment --Industry shipments are projected to grow about 9 percent in 1985, up from 7.5 percent in 1984. Over 45 percent of the industry's shipments are purchased by the Department of Defense, which spent $17 billion on the products of this industry. International trade is not a major factor, and the United States enjoyed a trade surplus of $400 million in 1984. Continued growth in demand for high-technology electronic equipment by the Armed Forces should provide favorable long-term prospects for an 8 percent compound annual growth rate to 1989. Fiber optics communications systems should grow rapidly in response to growing market demand, particularly in the telephone industry.

Problem Manufacturing Industries

Table 2 shows the 20 manufacturing industries with the lowest growth rates projected in the 1985 Outlook. There is a great deal of correspondence between the lowest 20 industries projected for this year and their 1972-82 actual growth rates, indicating that many of these industries have been declining for some time. Seven of the lowest 20 industries projected for this year are in the lowest 20 for 1972-82; nine additional industries are in the lower half for 1972-82. The principal exceptions are logging camps and log contractors and shipbuilding and ship repairing, which performed fairly well from 1972-82.

The 1985 rankings also correspond with the 1984 rankings, the principal exceptions being industries in which growth occurred in 1984 after ten years of decline from 1972 to 1982--primary zinc, softwood veneer and plywood, and sawmills and planing mills. The environmental controls industry is something of an anomaly. Most of the problem manufacturing industries are natural resource or agriculturally based. The electron tube industry stands out as an example of one electronics technology being replaced by another.

The five industries discussed below are featured as problem manufacturing sectors based on their long-term decline and negative future prospects.

Turbines and Turbine Generator Sets-- Shipments of turbines and turbine-generator sets are projected to decrease 21.9 percent in 1985. This industry's value of shipments has decreased 46.7 percent from the peak year of 1973. No significant upturn is anticipated until the late 1980s or early 1990s. The decision of electric utilities whether to replace or rebuild aging equipment will have a significant impact on this industry.

Pressed and Molded Pulp Goods--The compound annual rate of decline for this industry was 3.7 percent from 1972-84 and is expected to decline by about 3 percent in 1985. The average annual rate of decline is projected at between 2 and 3 percent to 1989. New technology to adapt pulp trays for use in microwave and conventional ovens could counter this projected deline.

Set-up Paperboard Boxes--This industry declined at a compound annual rate of 6.7 percent from 1972-82 and declined about 1.5 percent in 1984. Real shipments for 1985 are forecast to remain at about the same level as last year. During the 1985-89 period, the real value of shipments is expected to increase at 1 percent annually. Competition from other packing sectors, particularly plastics, will constrain growth during the 1980s, but the industry is expected to maintain its share for high-value specialty packaging.

Brick and Structural Clay Tile--After declining during the 1972-82 period at a compound annual rate of 6.5 percent, the value of shipments by the industry rose about 30 percent in 1983 and 10 percent in 1984 to $1.05 billion, still well below the cyclical peaks of the 1970s. Growth this year is projected to remain flat, and the industry is expected to experience slow long-term growth at best. While brick and tile are popular cladding materials in residential construction, more cost effective materials have eroded their market share, and no significant rebound is projected.

Rubber and Plastics Footwear--After declining at a 3.6 percent compound annual rate from 1972-82, the value of shipments rose by 0.8 percent in real terms to $706 million in 1983. In 1984, the decline continued with a 1.1 percent decrease in the value of shipments, and the same decline is projected for 1985. Imports, which were 30 percent in 1970, are estimated to have accounted for two-thirds of U.S. consumption in 1984. Long-term growth rates are expected to depend on the size of the population and thus should grow slowly over time. Foreign competition will continue strong, with shifts in country of origin as occurred in the change from Japan to South Korea and Taiwan during the 1970s.

Key Manufacturing Industries

There are a number of ways to identify industries that are "key' to U.S. national economic and international trade performance. Three clusters of industries--consumer durables, motor vehicles, and construction--are of particular importance. Because these three cyclically sensitive groups influence demand in so many other industries, changes in their growth have a large effect on the general economy. Most of these industries have rebounded sharply from the 1981-82 recession and are expected to have growth rates this year that will exceed their long-term rates. Nevertheless, this year's growth rates will not match the high-growth performances of 1984.

Consumer Durables--Consumers tend to postpone durable goods purchases when their disposable incomes are uncertain or declining. Sales rebound strongly with recovery, however, at least until pent-up new and replacement demands are satisfied. For example, all the consumer durables industries shown in Table 3 will have shipments growth rates this year that are below those in 1984, when backlog demands were still being met. Nevertheless, shipments growth rates this year are expected to exceed long-term rates. Shipment levels should far surpass the 1982 low-demand levels. Moderating growth in those industries eventually will affect demand for aluminum and steel, paints and allied products, electronics, and a multitude of other industries.

Motor Vehicles--The automobile industry is expected to show similar patterns in 1985 as compared with 1984, and long-term growth rates should show substantial improvement from 1982 levels (see Table 4). Consumers who had postponed car purchases during the 1981-82 period entered the market strongly in 1983-84, but this year's forecast reflects some satisfaction of this pent-up demand. Most of the automobile satellite industries will reflect this trend. A few of these are listed in Table 4, but many others--plastics, glass, and metals, to name a few--will also be affected by the slowdown in auto sales.

Construction--The slackening rate of new housing starts expected this year will have a large effect on many directly related industries, as well as on those, such as consumer household durables, that are indirectly related to new housing (see Table 5). For construction in general, however, nonresidential construction will take up some of the slack. Many of the industries particularly involved in nonresidential construction--for example, cement and concrete products and construction machinery-- will better their long-term growth rates, even though these rates are still well below last year's. Most of the wood-related industries will not match long-term growth rates, however, and some will have shipments levels only slightly higher than in 1982.

Balance of Trade and Total Trade--Balance of trade (surpluses and deficits) and total trade (exports plus imports) are two measures for indicating key U.S. industries in terms of international trade. Ten industries whose 1985 exports are projected in the Outlook to be at least twice the value of their imports are: aircraft, aircraft equipment not elsewhere classified, industrial organic chemicals not elsewhere classified, oil field machinery, aircraft equipment and parts, plastic materials and resins, internal combustion machinery, paperboard mills, and phosphatic fertilizer. The following projected trade deficit industries lead the list of those whose imports are anticipated to be at least twice the value of exports: motor vehicles and car bodies; steel mill products; radio and TV receiving sets; papermill except building paper; office machines and typewriters; telephone and telegraph apparatus; tires and inner tubes; household appliances; motorcycles, bicycles, and parts; and primary aluminum. In terms of total trade for 1984, the following ten industries lead the list of key U.S. industries: motor vehicles and passenger cars, petroleum refinery products, parts of motor vehicles, electronic computer equipment, semiconductors, steel products, radio and TV receiving sets, smelter and refined nonferrous metals, radio and TV communication equipment, and industrial organic chemicals.

Service Sector Projections

Services-producing industries currently account for over two-thirds of GNP and have been increasing this percentage for many years. The strength of the service sector since 1972 has been evidenced by several factors.

a rapid growth of intermediate business services,

an upward pressure on prices of services,

a rapid increase in service sector employment,

a further shift in the source of personal income from goods-producing industries to services-producing industries, and

an increasing importance of services in U.S. international trade.

These trends are expected to continue into the 1990s, with some industries doing better than others and with most dependent upon a strong economy.

All overall categories are forecast to increase both in 1985 and through the 1989-90 period. This, of course, does not mean that there will not be industry segments within these overall categories that will suffer declines during this period. But in general, services-producing industries are expected to continue to grow over the next five years.

Coverage of the services sector has been significantly increased in the 1985 U.S. Industrial Outlook over the 1984 publication, with an increase of over 28 percent in the number of pages (99 in 1985--up from 77 in 1984).

Capsule comments on the 18 service categories included in the 1985 Industrial Outlook follow.

Information Services--This sector includes data processing services, electronic data bases, videotex and teletex, and R&D services. The largest increases are expected in data processing (10-to-18 percent increase this year over 1984) with long-term growth trends expected near their historic highs. Electronic data bases are expected to grow about 23.1 percent this year over 1984, with average annual growth through 1989 of about 23 percent. This is the fastest growing segment of information services because of its small base, and its continued growth depends on the increasing acceptance of personal computers. Videotex and teletex services are expected to grow about 10 percent in 1985 from 1984 and at 10 percent or less annually for the next several years. R&D service growth should be about 6 percent this year over 1984.

Transportation Services--Long-term prospects for airlines are optimistic, with an average annual growth rate of 4 to 5 percent for the next decade. In trucking, an 8 percent increase in ton-miles is expected this year over 1984, which was 7.1 percent over 1983. The longterm prospects are favorable, dependent on the overall economy. Railroad traffic and revenues are expected to increase 3 percent and 10 percent, respectively, this year over 1984. Long-term prospects for railroads are optimistic, with an average annual growth rate of 2.8 percent through 1989, dependent on a strong economy. In ocean shipping, liner operations in the domestic deep seas trade are at relatively good levels, keeping pace with growth in the U.S. economy. The domestic tanker industry is in a considerably stronger position than the foreign trade tanker sector. Prospects are closely tied to domestic production and consumption of petroleum. No significant changes are expected in this market.

Wholesale Trade--Merchant wholesaling is expected to post an average gain of 10 percent for this year, with durable goods up 12 percent and nondurable goods up 8 percent. Average annual gains of 9 percent are forecast through 1989.

Retail Trade--Overall retail sales are estimated to have increased by 10.5 percent in 1984 from 1983. An increase of 9.5 percent is forecast for this year, with durable goods comprising 31.5 percent and nondurable goods comprising 68.5 percent of all retail trade.

Advertising--This industry is expected to continue to grow faster than the economy as a whole, with an average annual growth rate of 10 percent through 1989.

Hotels and Motels--An increase in gross receipts of 10 percent is expected this year, with favorable long-term prospects.

Travel Services--Expenditures this year are expected to increase 10.1 percent over 1984. An average annual growth rate of 4 percent is expected through 1989.

Motion Pictures--Box office receipts are expected to rise 6 percent this year over 1984 and to average an annual increase of 7 percent through 1989.

Commercial Banking--U.S. commercial banks have successfully satisfied rising credit demands as economic growth remains strong. The banking system appears strong enough to absorb any foreseeable shocks. Asset growth of 9 percent and loan increases of 11 percent are expected this year over 1984.

Savings Institutions--Assets are expected to increase by 10 percent; mortgages held are expected to increase by 10 percent, and mortgages made are expected to decline by 10 percent this year over 1984.

Insurance--Life insurance purchases are forecast to increase by 11.5 percent, and premiums are expected to increase by 8 percent this year. In the long term, large insurers are expected to increase their market share from 48 to 50 percent by 1990 as small insurers are driven out.

Equipment Leasing--This industry is expected to increase by 5 percent this year over 1984. The long-term performance depends on a continued economic expansion. The international market will become more of a factor in the next few years.

Health and Medical Services--Health care expenditures are expected to rise by 10 percent this year, with an average annual increase of 9 to 10 percent through 1990. Health maintenance organizations, other prepaid plans, home health care services, and freestanding emergency centers will continue to grow in enrollment and expenditures, causing hospitals to market themselves more aggressively in order to stay competitive.

Franchising--New entrants are expected to outnumber dropouts by 5 percent this year. Through 1990, the greatest gains are expected in business format franchising, with 13 percent average annual increases.

Educational Services--Educational expenditures are expected to increase by 6 percent this year over 1984. The present downward trend in enrollment is expected to be reversed by 1986 and then continue to increase to 1993.

Management, Consulting, and Public Relations Services--This industry sector is forecast to increase 13 percent this year over 1984 as a result of general economic expansion. The long-term prospects are very favorable, but they are dependent on overall growth of the economy and on the pace of institutional and structural change in the way goods and services are produced.

Operations and Maintenance Services-- Receipts are forecast to increase by 5.3 percent this year and at an average annual rate of about 5 percent through 1989.

Architectural and Engineering Services-- Receipts are forecast to increase by 5.3 percent this year and at an average annual rate of about 5 percent through 1989.

Table: 1 Manufacturing Growth Leaders: 1985 Outlook

Table: 2 Problem Manufacturing Industries, 1985 Outlook

Table: 3 Consumer Durables: 1985 Outlook

Table: 4 Motor Vehicles: 1985 Outlook

Table: 5 Construction: 1985 Outlook

Table: 6 The Most Rapidly Growing Service Industries (May 1981 to May 1984)

Photo: The state-of-the-art in lithographic platemaking is shown in this picture. The growth of the lithographic platemaking industry has exceeded that of all other industry groups within the printing, publishing and allied industries since 1972.

Photo: The number three U.S. manufacturing leader is the aircraft industry. The most important 1985 gain in this industry is projected to occur in the large transport aircraft sector.

COPYRIGHT 1985 U.S. Government Printing Office
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