A Lusty, Lopsided Recovery

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Even so, Detroit's turnaround has given hope to the struggling steel industry. Says Bernard Lashinsky, chief economist for Inland Steel: "The recovery is real. It is strong. But it is very lopsided." While shipments to the automakers have climbed, sluggish capital spending has held back sales of steel products to builders and machinery manufacturers. In the third quarter, 15 major steel companies lost a total of $527 million, not much less than the $603 million deficit they suffered in the same period of 1982. Though steel executives hope to move into the black next year, they remain cautious about the outlook. Says David Roderick, chairman of U.S. Steel: "The capital-goods sector is going to improve in 1984, but nobody is anticipating a major boom."

As long as steel companies remain depressed, so will their suppliers of raw materials, including some parts of the coal industry. In West Virginia, where many mines are dependent on steel's fortunes, employment in the coal business is down 41% since 1981. But one hopeful sign for the industry is that electric-power generation is currently up 3.8% over a year ago. Coal stockpiles at power plants have dwindled to a 78-day supply, down from 99 days' worth last year at the same time, and utilities will probably have to step up their purchases of fuel in 1984.

The machine-tool industry, which is totally dependent on capital spending, remains a disaster area. Orders for tools will total about $1.5 billion this year, barely 1% more than in 1982, and 73% less than the level of 1979. "Some companies will have their worst year since 1935," says Joseph Franklin, an economist with the National Machine Tool Builders' Association. Employment in the industry has dropped 36% since 1981.

Machine tools, steel and autos are among the many U.S. industries badly hurt by the historically high value of the dollar in international trade. High American interest rates have encouraged many foreigners to convert their money into dollars for investment in the U.S. That has sent the value of American currency to new peaks on exchange markets and made imports unusually cheap in the U.S. Foreign companies, led by the Japanese, have captured 27% of the American machine-tool market. Manufacturers in Taiwan, Singapore and South Korea have made new inroads into the American furniture business. "The trend is particularly frightening for dining-and living-room furniture," says G. Alex Bernhardt, president of Bernhardt Furniture in Lenoir, N.C., one of the oldest U.S. manufacturers. "I estimate that 20% to 25% of sales are imports."

The high value of the dollar has also made American goods exceptionally expensive overseas. U.S. exports are off 6% this year, after a 9% drop in 1982. While many export industries have started to improve, shipments of farm products and capital goods are still weak. Overseas sales of earthmoving equipment, for example, are down 35% this year. Sluggish exports combined with rising imports will drive the U.S. trade deficit to a record $60 billion for 1983, according to Sara Johnson, an economist with the Data Resources forecasting firm.