U.S. economy to slow .9% in 1998, forecast says

InTech, Oct 1997

Economists collectively predict industrial production will increase at a rate of 3.3% in 1998 compared with 4.2% in 1997.

San Francisco-A consensus opinion of 18 leading Wall Street economists indicates the U.S. economy growth is expected to decline steadily during 1998 to an annual rate of 2.6% from a projected rate this year of 3.5%, reports a Bank of America publication.

According to Economics Illustrated, a publication of the bank's Capital Management Group, the economists collectively predict industrial production will increase at a rate of 3.3% in 1998 compared with 4.2% in 1997; the annual growth rate in consumers' disposable income will fall to 2.8% in 1998 from an expected 3.6% this year; the consumer price index will only rise modestly next year to 2.7% from 2.4% in 1997; unemployment will remain unchanged this year and next at 5%; the growth in corporate profits will fall to an annual rate of increase of 4.1% in 1998 from 6.2% this year; and the trade deficit will fall to $122.6 billion in 1998 from $125.7 billion this year.

According to the publication, an interesting situation was observed that strongly suggests the U.S. economy has reached a crossroad. None of the Wall Street economists even hinted at using the "R" (recession) word. However, two camps of thought emerged.

One group thinks that the U.S. economy will continue to expand strongly for the rest of 1997 and much of 1998. That group also believes the industrial side of the economy will remain strong, business spending will continue at a high rate, and consumer confidence will reach record-high levels.

By contrast, the other camp of economists expects only modest growth in real gross domestic product for the rest of this year and next. Their forecast is based on assumptions that in the coming months consumers will be "tapped out" because of much heavier debt loads, they will have become much more cautious, and they will have substantially increased their levels of savings because of growing pessimism about the future direction of the economy.

That same group of Wall Street economists expects that there will be a buildup in inventories, which could slow production, and a slowing of export growth because the dollar will not weaken in coming months.

Business churn rising for lube basestocks Fairfield, NJ.The North American lube oil basestocks business will undergo more supply and demand changes in the next decade than the industry has seen in the past 20 years, according to a recently published study by Kline & Co., a Fairfield, N.J.-based management consulting firm.

The report, titled The Changing Face of the Lube Oil Basestocks Business, Volume Two North America, concludes that recent changes in the business, including depressed prices, mergers, acquisitions, and company exits, are expected to continue at an unprecedented pace over the next few years. In addition, basestock and finished lubricant manufacturers face new challenges in meeting increasingly stringent performance requirements while competing in a market with relatively flat growth.

Thomas F. Glenn, Kline marketing manager, said the study predicts that by about the year 2000 four or five paraffinic basestock plants will have shut down (and some of the remaining plants will have adjusted their product mix) in order to bring supply and demand back into balance.

"Two plants in particular that we identified as being at `high risk for closure' are actually now in the process of either closing or changing hands," noted Glenn, citing recent announcements by Tosco that it is planning to close Unocal's Rodeo, Calif., plant, which it purchased only last year, and by Ergon that it has signed a letter of intent to buy Quaker State's Newell, WVa., refinery.

In addition to a revamped "who's who" in the business, industry dynamics over the next few years will have a significant impact on the quality of basestocks produced, Glenn noted. "The new Excel Paralubes basestock plant that opened in early 1997, a joint venture between Conoco and Pennzoil, is only the most obvious example that a major change in product quality is on the horizon.

"The Excel plant adds additional Group II capacity to the North American supply pool," Glenn continued. "Together with the Group II produced by Chevron and Petro-Canada and the announced plans of Texaco and Exxon, Group II will be a significant market force," he added.

According to the Kline study, the push up the quality continuum is not expected to stop with Group II products. Glenn believes that ongoing discussion about product definitions will escalate, especially between Group III basestock and polyalphaolefin (PAO)-based products, as Group III products challenge PAO's nearly exclusive market appeal as a synthetic product. If successful, this challenge could have a profound effect on the market, starting with consumer automotive lubricants, Glenn said.

Pipeline expansion focuses on Baltic

Helsinki, Finland-Southeastern Europe is traditionally associated with Ruritanian states, constantly warring among each other while forming secret, and short-lived, backstage alliances. That's why today we see eternal bickering between the states of the Caspian Basin and the eastern Mediterranean-and Russia-over who will extract oil and gas from the region and transport it westward.