Economic Outlook: Manufacturing To Take A Hit

Even corporate executives in the U.S. who insist they're looking at the long term can be excused for having a few Maalox moments this week. In particular, Monday's 512.61-point fall in the Dow Jones Industrials had to shake their confidence in the U.S. economy's ability to sustain recovery, now in its 90th month, from the 1990-1991 recession.

To be sure, there have been some positives this week: Construction spending rose to a record high annual rate of $650.4 billion in July, the Commerce Dept. reported on Tuesday. And the Conference Board, a New York-based business-research group, still believes the U.S. economy is healthy and expects "moderate" growth for the rest of 1998.

Nevertheless, it seems that in the months ahead manufacturers in the U.S. will have a tougher time generating the earnings growth they've sought and reaching the capital-spending goals they've set. Observes Jerry Jasinowski, president of the National Assn. of Manufacturers, Washington, "The decline in exports and the downward deflationary pressure in international markets that underlies this decline make it impossible for American manufacturers to raise prices. Moreover, the decline in stock values has raised the cost of capital and will contribute to downward pressure on capital spending."

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