Riding Out The Storm

The recession will stagger many industries, but some may do fine. Here is a forecast of winners and losers.

By John E. Gallagher Monday, Jan. 07, 1991

    • (2 of 3)

    Health Care. Health care, the most recession-proof of any industry, will keep growing about 10% in revenues during 1991, generating thousands of new jobs. "Americans are willing to support any capacity out there, but at some point that will crumble," says Uwe Reinhardt, an economist at Princeton University. Most employers have begun to balk at rising health-insurance premiums, and this could begin to restrict the growth of some parts of the industry. Psychiatric care may feel the pressure first, as employers seek limits to insurance coverage. Pharmaceutical companies, notably Merck and Bristol-Myers Squibb, will be big moneymakers again in 1991. Most of the major companies have invested heavily in new drugs that will pay off early in the decade.

    Insurance. The industry will have to fight a rising public perception that insurers are on the brink of a debacle comparable to the thrift industry's. In fact, most insurance companies are far healthier than savings and loans. "Total assets of the industry are on the order of $2 trillion. Very little of our holdings are below investment grade," says Robert Winters, chairman of Prudential. However, a few firms are faltering because of large junk-bond portfolios. And far more companies, notably Travelers and Equitable, have suffered from the falling value of real estate holdings. This year insurance companies will be caught in a squeeze because liabilities will go up but consumers and regulators will resist any sizable increase in premiums.

    Newspapers. The most immediate worry in the industry is the precipitous drop in advertising. "It's the softest ad environment we've seen in over 20 years," says Douglas McCorkindale, chief financial officer of Gannett, the largest U.S. newspaper group. Ad linage will probably keep falling through 1991, largely because troubled retailers have cut back drastically. At the same time, the price of newsprint, which accounts for about 25% of a paper's expenses, has been rising because of higher production costs. Forced to economize, newspapers will continue to trim their staffs and, by extension, their news coverage. When ad revenues pick up, papers will still have an enormous problem to solve: a sharp decline in interest among readers under 30.

    Oil. The outlook hinges on the Persian Gulf crisis. A protracted war could raise oil to $50 per bbl. or more and bring huge profits to many companies. But in a standoff, crude will probably remain at about $25 per bbl., or $5 to $10 above last summer's price. That still means a substantial profit for most oil companies, even though higher prices at the pump will cut demand for gasoline 1% to 2%. To diversify reserves, the industry will expand its overseas search for new supplies. But the industry's main concern will be found closer to home. "You can't look at 1991 without looking at the environment. It's a pervasive issue," says James Kinnear, Texaco's chief executive. To meet standards set by the Clean Air Act, the companies will have to spend billions of dollars to formulate cleaner-burning products. That cost will eventually be passed on to the consumer.

    3. 1
    4. 2
    5. 3