(FORTUNE Magazine) – JUST BECAUSE the party has gone on for a long time doesn't mean everyone is having fun. Industries like paper and petrochemicals, which began adding capacity in the boom times a few years back, now look like victims of a classic downturn. Detroit's cyclical woes are compounded by stiff new competition from Japanese plants in its own backyard. But there's still plenty of revelry, partly because of strong export sales. Boeing is stamping out planes like cookies. Companies that supply food, drugs, and entertainment are flourishing. And since industry is spending on equipment to stay competitive, even the heavy-machinery makers are churning along. -- CARS: Cough, cough. Slowing employment growth, worries about higher interest rates, and falling used-car prices have many consumers strolling out of the showroom doors with wallets untouched. Says Christopher Cedergren of the J.D. Power & Associates market research firm: ''The industry is going through a payback for rosy times in the mid to late Eighties, when it oversold the market.'' FORTUNE forecasts a 3% decline in car and light-truck sales this year, to 14.1 million units, and only a slight uptick of 100,000 units next year. The industry unfortunately will build more cars than the market can absorb. Japanese manufacturers in the U.S. have now raised capacity to over 1.8 million units, and both Detroit and the transplants have their own ideas about how much of the market they will capture. So despite manageable current inventories, dealers will still end 1990 with too many vehicles on hand. Edward Sullivan of the WEFA Group predicts that excess supply in North America will reach 1.8 million units by year-end, up 38% from 1989. Most of those cars will probably be in the hands of Detroit's dealers. Cedergren anticipates that its share of the domestic car market will slide more than three points this year, to 64.7%. Paine Webber auto analyst Ann Knight predicts that profits for GM and Ford will drop 40% in 1990, to $2.6 billion and $2.2 billion, respectively. Adjusted for non-recurring charges and gains, Chrysler's profits -- expected to be $350 million -- would show a similar decline. -- APPLIANCES: Slow cycle. The big manufacturers are hunkered down. Consumers are saturated with microwave ovens, the darlings of the industry just a few years ago and now accounting for 22% of unit sales. Shipments dropped 3.5% in 1989 and will ease another 2.3% in 1990, according to Craig Schulz, marketing director for the Association of Home Appliance Manufacturers. Shipments of all appliances will fall 2.7% in 1990 and rise just 1.8% in 1991. Housing starts are stagnant; worse, replacement demand is down. Says Russell L. Leavitt, director of stock research at Salomon Brothers: ''Many appliances bought now are replacing goods bought ten to 15 years ago. But the late 1970s were also a period of low sales, and slow replacement rates now reflect that.'' Leavitt thinks the slow cycle is just beginning and may last into the mid-1990s. Prices won't rise much either, owing to a hot competitive brawl among the four leaders -- GE, Whirlpool, Maytag, and White Consolidated (owned by Sweden's Electrolux). -- FOOD: Healthy. All industries should have problems like this one. Revenue growth for the 15 leading packaged-food manufacturers will slow to 8% this year and next, from 10% last year, says Nomi Ghez, a vice president at Goldman Sachs. The good news for consumers is that food prices will increase at a 4% rate over the period, by FORTUNE's estimate, vs. 6% last year. Ample spring rains promise the best grain crop in several years, meaning that meat and poultry prices will stabilize. Consumers keep snapping up new, high-margin convenience lines. Now they want fresh too, and manufacturers are obliging with prepared chickens and refrigerated pastas and sauces. Combining freshness with still more convenience presents another profit opportunity for food producers willing to try their hand at home delivery, says Martin Friedman, editor of Gorman's New Product News. In Minneapolis, General Mills is testing such a service, which it calls Bringer's, to deliver anything from chicken fajitas to cookies for a $1 charge. In the booming European market, a battle is brewing for command of the cereal bowl. General Mills is joining forces with Nestle to compete overseas with Kellogg. The prize: unit volume growth of 8%, vs. 3.5% in the U.S. -- CLOTHING: Slow but steady. Women's and children's clothes will continue to lead the way, says Rosalind Wells, chief economist for the National Retail Federation. But storekeepers will also find more men peering into the racks. After several years of highs, wool prices are falling. ''That will put a slowdown on price rises for tailored clothing, especially men's suits, and should bring men back to the stores,'' says Brenda Gall of Merrill Lynch. FORTUNE expects total sales to climb 3.6% this year and 5.5% next. In this era of bankruptcies and overleveraging, the competitive edge will go to retailers and wholesalers who can afford equipment that lets them respond quickly to changing tastes. Harry Bernard of Colton Bernard, a market consulting firm, singles out Dillard Department Stores and J.C. Penney as leaders -- both use computers to track what customers want and stock the shelves accordingly. -- PHARMACEUTICALS: All pumped up. Wonder drugs should produce wondrous profits for pharmaceutical titans out to cure the world, but will they? Ronald Nordmann of Paine Webber predicts that earnings will grow 17% to 18% over the next 18 months. Among the expected new products: drugs to fight Alzheimer's (Warner-Lambert's Cognex) and AIDS (Bristol-Myers Squibb's DDI). But Congress is compounding a bitter dose. For years prices have climbed about 10% annually, accounting for four-fifths of the rise in companies' revenues. Now the Senate is debating a bill that would force the industry to curb price increases and negotiate discount sales to state Medicaid purchasers. The drugmakers argue that they need the gains to cover R&D expenditures, generally 10% to 20% of sales. Nordmann doubts the bill will pass, but nonetheless thinks the industry will administer itself some preventive medicine and limit price rises to about 7%. -- COMPUTERS: Crunching strong numbers. Domestic unit sales of U.S.-made PCs will increase 5.7% in 1990, according to Dataquest, a market research firm. That's down from 7.4% in 1989. Analysts generally expect revenue growth to be just below 10%. But demand should pick up next year after business buyers sort out new operating systems and networking schemes. Barbara Isgur of Needham & Co. thinks sales could climb as much as 15%. Pockets in the PC market will show tremendous strength. Steven L. Ossad of Montgomery Securities predicts that sales of laptop portables will increase 39% in 1990 and 24% in 1991. Shipments of workstations will jump 40% in 1990, according to Tim Miles of the Commerce Department. Software revenues should increase by more than 20% in 1990 by Commerce Department estimates. Overseas demand is especially strong: First-quarter exports were up 50%, says Ann Stephens, research director of the Software Publishers Association. Mainframe sales will pick up as new product lines come from IBM, Hitachi, and Amdahl. Predictions are hazardous in an industry where serious shipments may come long after product announcements, but deliveries should begin by mid- 1991. For IBM, which has about 65% of the world mainframe market, John Jones of Montgomery Securities predicts worldwide revenue growth of 7% to 8% in 1990, lower than 1989's 12%, as buyers hold off purchases in anticipation of the new products. He thinks Big Blue's revenues will climb 10% to 12% next year. -- INDUSTRIAL EQUIPMENT: Grinding ahead. Moderate capital spending will provide a solid base for the next 18 months, and growing foreign markets will frost the cake, especially in 1991 as infrastructure projects bulldoze their way across Germany and the rest of Europe. Alexander Blanton of Merrill Lynch predicts that exports and foreign sales will help lift revenues for machinery manufacturers 8% to 10% per year in 1990 and 1991. Earnings will grow at a 15% rate, thanks to better performance in modernized factories. Farmers have been using increased net worth and cash flow to buy new tractors and combines. Kidder Peabody analyst Richard Sweetnam estimates that unit sales of large tractors will rise 20% this year, and combines 50%, more than offsetting sales declines in such markets as construction and lawn and garden, and yielding a 15% rise in revenues. Earnings will grow even faster. Blanton predicts that Deere, which gets over half its revenues from agricultural equipment, will enjoy an earnings surge of 20% this year and 10% in 1991. -- COMMERCIAL AIRCRAFT: Over the ozone. Another year, another record number of sales -- and orders. Total sales of civilian aircraft, according to the Aerospace Industries Association, will top $31.9 billion in 1990, a 100% increase in just three years. Worldwide demand for planes -- Boeing's backlog now tops 1,750, half of that from foreign purchasers -- will keep local employment up and exports strong for many years. Net exports of aircraft in 1989 were $10.7 billion. Howard Rubel, an aerospace analyst at C.J. Lawrence, thinks commercial revenues for Boeing, America's top exporter last year (see Trade), will increase 48% this year, to $21 billion. Growth in 1991 will decelerate to 10% to 15%, partly because the company will ship more narrow- body 737s, which sell for less per plane than wide-body 747s. -- DEFENSE: Here comes the build-down. Peace is perilous for the hundreds of companies producing planes, ships, tanks, and other war hardware. Though defense spending will be up 2.4% to $310 billion this year, it peaked in the second quarter. Next year comes a 1.2% decline. Contractors are starting to worry, but so far have not done much. Can they convert when the time comes? The U.S. controls three-quarters of the world avionics industry and produces 85% of all jet engines, both products with strong civilian markets. But it's not clear that the commercial market can absorb so much new capacity or that the producers can sell to price- conscious customers. Says Bob Paulson, head of McKinsey & Co.'s aerospace practice: ''Military contractors are so driven by performance that they find it hard to learn a new culture. It is tough to tell them that cost does not always equal price.'' Experts are more sanguine about makers of such products as satellites and surveillance equipment, where buyers consider performance first, costs second. -- CHEMICALS: Specialties shine. The capacity that commodity producers started adding during the expansion's strong years is turning around and biting them. Petrochemicals are the most overbuilt: Oppenheimer analyst Charles Rose thinks profits will drop somewhat this year and as much as 40% in 1991, on sales decreases of 10% to 15% annually. Says Rose: ''For petrochemicals it is a question of relative terribleness.'' But not for makers of specialty chemicals, which get cheaper raw material costs as a result. In addition, specialty products compete more on performance than price. Says Karen Lane Gilsenan at Merrill Lynch: ''Manufacturers are more concerned with such questions as 'Can this adhesive solve my problem?' '' Gilsenan predicts that earnings will rise 12% in 1990 and 15% in 1991, outstripping annual revenue growth of 10%. -- METALS: Muddling through. Steel is in a ''catch-your-breath year,'' says David Foltz, associate director of AUS Consultants, an analytical and consulting firm. AUS predicts that profits will plunge 59% to $1.2 billion in 1990 as sales slip 5%, before recovering to $3.1 billion in 1991, close to 1989's strong level. Import market share, 18% in 1989, will fall one percentage point annually in 1990 and 1991. Exports, 5% of production last year after a decade of near nonexistence, will remain solid. The good news glinting through the general commodity slowdown is that low inventories will do much to ease the pain of transition. For example, copper supply disruptions over the past year in Papua New Guinea, Africa, and South America have cut worldwide production by 6%. J. Clarence Morrison of Prudential-Bache thinks that producer prices, $1.25 a pound in 1989, will drop slowly to $1.10 in 1990 and $1 in 1991 -- still strong for a slow economy. Aluminum will also slide. Prices on both ingot and fabricated products will fall 11%, resulting in a 30% earnings drop in 1990, before picking up 10% in 1991. Among the noble metals, platinum looks the most promising as automakers in Europe begin equipping cars with catalytic converters to cut harmful emissions. Smith Barney consultant William G. Siedenburg ''wouldn't touch silver with a ten-foot pole.'' But he expects gold to steady around $375 next year as Australia, the world's fourth-largest producer, cuts output in the face of new domestic taxes. Nickel prices will stabilize at $3.75 a pound, says Morrison, after swinging from $4.50 to $2.50 last year. Demand for stainless steel, which consumes 62% of nickel production, will rise 25% this year, partly because stricter standards for toxic-waste disposal will require more stainless pipes. -- OIL: Slow flow. Profits won't be gushing any time soon, but neither will they dry up. Earnings will be flat or rise slightly, with stronger potential kicking in next year. West Texas intermediate crude, the U.S. bellwether, will be up at best 50 cents per barrel from last year's price of $19.59. Look for a rise of another dollar next year. Demand should decline 2% this year, says John Lichtblau, president of the Petroleum Industry Research Foundation. Domestic production will drop 3% to 4%. Drilling has been up recently from horrendous lows in the late 1980s, lifting spirits and profits at oil field service companies, but given the modest outlook for prices, it shouldn't expand much more. Refining and marketing profits will rise slightly this year, although capital spending will be up too -- partly because of new environmental standards requiring more oxygen in gasoline by 1994. If budget negotiators on Capitol Hill pass a gas tax, demand could drop faster. -- PAPER: Crumpled. Producers are ready for some action, but they've arrived late at the party. Capital investment, up 38% in 1989, will increase another 13% in 1990, topping $17 billion. The American Paper Institute reports plant capacity will increase 3.1% in 1990 and 3.7% in 1991. ''Capacity increases are well above long-term growth rates,'' says George Adler of Smith Barney. Operating rates will decline from 92.8% in 1989 to 91.8% in 1990. That excess capacity will pull prices down 3% to 4% this year, says Mark S. Rogers of Prudential-Bache. Adler predicts that profits for industrial paper companies will plunge 25% to 40%. -- TELECOMMUNICATIONS: Overseas calling. International service is among the hottest growth areas for the long-distance giants, and Frank Governali, an analyst at First Boston, expects traffic to increase nearly 20% in 1990. Much of the business is coming from corporations exchanging data with others abroad. The regional Bell companies are gearing up as well, says John Malone, chairman of the Eastern Management Group, a consulting firm, with plans to expand overseas with investments in telephone companies, cellular operations, and cable TV. Overall, earnings will grow more than 4% in 1990 and 8% in 1991, says Governali. Business at home isn't bad either. Governali expects long-distance volume to climb at about a 13% pace over the next 18 months. Rates, which have fallen nearly 50% since 1983, will drop more slowly from now on. Regulators had been shifting access charges formerly paid by the long-distance carriers to customer bills for local services. Now that the process is largely completed, long-distance companies don't have those savings to pass on. MCI and US Sprint will continue to gain at AT&T's expense, says Joel Gross of Donaldson Lufkin & Jenrette. He predicts operating revenue growth this year of 25% for Sprint, 22% for MCI, and 7% for AT&T's long-distance operations. -- MEDICAL SERVICES: Healthier. Most providers of health care will finally get a shot of robust profits after several anemic years. First Boston's Joyce Albers thinks that revenues and earnings for hospital management companies will rise 10% to 15% this year. Health maintenance organizations, which now enroll over 35 million people, will get a revenue rise of 20% to 25%, and earnings growth of 15% to 20%. Even nursing homes, ravaged in years past by too rapid expansion, will have an earnings increase of 10%. Not-for-profit hospitals may soon climb off their gurney. Over the past six years Medicare payments, which generate 39% of a hospital's revenues, have failed to keep pace with medical inflation. But the Supreme Court ruling in June that hospitals and nursing homes can sue states whose Medicaid reimbursement rates underrepresent the cost of care may help the institutions catch up. Still, that won't benefit the municipal hospitals that get a disproportionate share of the uninsured indigent. -- AIRLINES: Turbulent. Americans will be paying more to fly in the next 18 months, but the folks flying them won't get any richer, because fare increases will trail behind labor and fuel costs. Lee Howard, CEO of the Airline Economics consulting firm, thinks revenues will rise 7% in 1990, but operating profits, $1.4 billion in 1989, could plunge to less than $500 million before recovering at $1 billion in 1991. Airlines with overseas routes will fare the best. International travel now commands one-quarter of all revenue passenger- miles, up from 20% five years ago. But Pan Am and TWA, the granddaddies of foreign travel, are too whipped to benefit. ''They will continue to lose ground,'' says Kevin Murphy of Morgan Stanley. ''The mantle for international aviation is passing from them to American, United, Delta, and Northwestern.'' The outlook for the two carriers heralds what Murphy calls an ''implosion'' in the industry. Says he: ''One-third of the companies already have a negative net worth.'' Howard of Airline Economics points out that operating profits for American, United, and Delta totaled $1.9 billion in 1989, or $500 million more than the industry as a whole. Not even American's return on shareholders' equity beat the S&P 500 average -- a performance that should blunt the swords of reregulationists who argue that the industry is enjoying monopolistic profits. -- ENTERTAINMENT: Rollicking. Graced by the technology of the past decade, the companies that produce movies, videos, and recorded music start the Nineties leading from strength. Videocassettes, along with sales to cable and other TV distributors, now make up 65% of the revenues producers get from movies. CDs created new markets for old music, and raised profit margins to boot. Paul Kagan Associates, a media research firm, expects industry revenues to grow 9.4% to $12.7 billion in 1990, and 12.3% in 1991. Diversification is paying off, especially for companies that integrated production and distribution. Movie production costs are rising, and box office receipts will be flat this year. But Kagan Associates expects spending on video rentals to grow 9% and sales of videocassettes 34% because of lower prices and broader selections. Foreign markets contributed 37% to motion picture producers' revenues for 1989, with slight growth expected for 1990 and 1991. Revenues for the music business are expected to leap 14% in 1990, according to Commerce Department estimates. Sales in 1989 hit $6.5 billion. Cassettes accounted for 65% of unit volume and CDs 26%, according to the Recording Industry Association of America. -- BANKS: Struggling. The Federal Deposit Insurance Corp. reports net income fell 38% in 1989. Analysts don't expect domestic operations to help much in 1990, but money-center banks won't be taking more big hits on their LDC loans. Regional banks show that location is everything in this industry, too. Growing real estate losses, which have already devastated Southwestern banks, are spreading their pain from New England down the coast. Banks beating the average include powerful regionals like NCNB Corp. and BancOne. Arthur Soter of Morgan Stanley expects a major wave of industry consolidation as earnings and credit problems continue. Facing relentless competition from foreign lenders, commercial paper, and other sources, many banks will be forced to cut costs through layoffs. A good number also hope to break into new markets. Robert Litan of the Brookings Institution thinks more will earn fees from repackaging and selling mortgages, securitized loans, and consumer loans. But last year's push to reform the Glass-Steagall Act has died down. Without such change, U.S. banks cannot fully enter the financial services business or compete with big global banks. Litan doesn't think the act will be revised until 1992 at the earliest. -- S&Ls: Shaking out. So far the Office of Thrift Supervision has seized nearly 450 of the U.S.'s 2,800 savings institutions, and the number will easily double by 1991. ''At least another 400 either don't meet the new capital requirements or are close to heading south,'' says Marty Regalia of the National Council of Savings Institutions. The well-managed survivors with loan portfolios consisting mainly of single- family residential mortgages stand to make profits -- at least for a while. A few large ones will gain market share as competing thrifts either close up or sell out. Robert Hottensen of Goldman Sachs sees 1990 earnings up by 20% or more for institutions that have maintained high capital reserves, such as H.F. Ahmanson, Great Western Financial, and Golden West Financial. But, warns Peter Treadway at Smith Barney, commercial banks are becoming increasingly competitive in the mortgage market. -- FINANCIAL SERVICES: A shift to saving. Changing demographics are helping life insurers; premiums should rise 7.2% in 1990. Older Americans are buying annuities for retirement savings, and younger couples are saving for their children's education. Annuity sales jumped 22% in 1989, and Margaret Alexandre of Salomon Brothers expects 26% growth in 1990. No question that the Eighties are over for brokerages and security companies. Profits fell 22% to $1.2 billion last year, says Perrin H. Long Jr. of Lipper Analytical Services, and will drop to $900 million this year before notching up to $1.1 billion next. Says Long: ''These companies can't grow high-profit revenues and cannot reduce their fixed costs fast enough.'' Property and casualty insurers are paying for the good times of the mid- Eighties, when a hunger for profitable new business led to relaxed pricing and underwriting standards. Premiums grew a slight 2.7% in 1989, and earnings fell 23% to $9.6 billion. Denis Callaghan of Alex. Brown & Sons expects earnings to drop again in 1990 to $8.47 billion. But premiums should rise 6%, setting the stage for a 48% lift in 1991 profits to $12.5 billion. -- UTILITIES: Powering down. Sales will be sluggish for electric utilities as industrial usage grows more slowly. Unless the summer suddenly turns blistering, demand will be in line with GNP growth, at 2% or less. Still, says Anne Prebensen of Donaldson Lufkin & Jenrette, ''it's a power-short market in several regions.'' In the Northeast, for example, Louis James, an executive director of AUS Consultants, believes brownouts are becoming increasingly likely. Utilities have been relying more on independent producers and cogeneration facilities that generate electricity with steam also used in other industrial activities, and are even dipping into emergency reserves regularly. New clean-air legislation will impose extra costs on coal-fired plants in the Midwest as they rush to add scrubbers or burn cleaner coal. Lower rainfall has put pressure on West Coast hydroelectric power producers. Some parts of the country, such as Texas, have excess capacity, but transporting that power to starving regions is difficult. Capital expenditures will grow modestly in capacity-strapped regions.