(FORTUNE Magazine) – THE RECESSION cast its pall selectively, and the recovery will begin just as unevenly. Is the consumer leading it? Clothing and housing will rebound, but cars will languish. Capital goods? Aircraft are flying high, but heavy- equipment makers are dragging. Drugs do well in good times and bad; Wall Street is on a roll; chemical and paper producers will still be hung over in 1992. But with few exceptions, U.S. industries will enter 1993 in fine shape. Here's the outlook for 19 of them. -- AUTOS: Sputtering back to life. The American auto machine is in gear -- just barely. Car and truck sales turned around in the first quarter, but from such a low base that FORTUNE estimates they will still be off 10% from 1990, at 12.5 million units. Combined 1991 operating losses for GM, Ford, and Chrysler will be $3.1 billion, says Ronald A. Glantz, an analyst at Dean Witter. Sales will pick up next year to a decent 14.7 million rate as the recovery restores consumers' financial strength. And the industry's: Glantz looks for a combined profit of $3.3 billion in 1992. Shoppers are visiting showrooms but leaving without wheels. Banks and auto finance companies are chary of lending to people whose liabilities as a percent of disposable income have reached an all-time high. Sales to rental and corporate fleets have taken up some of the slack, but as retail buyers trickle back into the market, Asian cars should gain ground -- the fleets buy almost exclusively American, but consumers do not. Asian market share for cars will rise from 29.3% to 32.3% by 1992, projects J.D. Power & Associates, a market research firm. The Japanese will make less headway in truck sales, increasing market share just over two percentage points by 1992. As the travel and homebuilding businesses recover, full-size vans and pickups will move sooner than any other vehicles. Too bad they make up only 11% of the auto and light-truck market. -- CLOTHING: More flair. For customers and manufacturers alike, fashion will become fun again as people start to worry less about where their money is coming from and more about how to spend it. After dressing up old work duds with accessories in 1990, women are beginning to add to their wardrobes again. Says Walter Loeb, publisher of the Loeb Retail Letter: ''The adventure is back.'' Retail spending on women's apparel has already edged up. Jay Meltzer, an analyst at Goldman Sachs, expects sales to increase 3% for the year and 4% in 1992. With store inventories generally lean, increased sales will quickly translate into higher manufacturing revenues. Meltzer sees profits rising 10% this year and 15% in 1992. To satisfy the demand for affordable clothes that go from workday to weekend with ease, more pricey designers are offering secondary lines that retail for 40% to 50% less than their signature lines. Two appearing soon are A Line by Anne Klein and Apriori by Escada. An unnamed new entry from Carolyne Roehm will appear in the fall. -- DRUGS: Extra strength. The recession hasn't kept drug sales from sailing to mood-altering heights. Pharmaceutical revenues will rise 15% this year and 14% next, says Richard Vietor, an analyst at Merrill Lynch. Profits will climb at an even more euphoric rate of 18% each year because of cost-control efforts and a preponderance of high-margin prescription drugs in the product mix. Blockbuster products account for most of this industry's growth, and by 1992 Vietor expects at least 30 new drugs to be approved by the Food and Drug Administration. A few have huge market potential. Ticlid, from Syntex, would be the only drug approved for the prevention of second strokes; doctors recommend aspirin now. Pfizer's Norvasc would treat at least two kinds of heart disease. And several million men over the age of 50 with signs of prostate problems could find relief from Merck's Proscar. Drugs could be less dreamy after 1992. Major patents are expiring, and the FDA will be approving more generics. Analysts also worry that a recently passed law guaranteeing Medicaid patients drugs at the lowest price charged any customer could herald more aggressive efforts to control industry profits. Says Paine Webber analyst Ronald Nordmann: ''There is a lot of saber rattling in Washington.'' -- HOUSING: Back from the basement. Homebuilding has bottomed out, but what a bottom it was. Even with modest increases in every quarter, starts will still be down 15% for the year as a whole to just over one million -- the lowest in three decades and 44% below the recent 1986 peak. Demand is not the problem. The National Association of Realtors expects mortgage rates to remain in the single-digit range for the rest of this year, luring first-time buyers and allowing others to trade up to higher-priced homes. Prices have started to rise -- the median existing house cost $100,200 in April, up 4.9% from a year earlier. Personal income should climb in line with future house-price increases, though, keeping affordability around its current level. But developers cannot get financing. The National Association of Homebuilders estimates that 48% of the nation's builders will be cash-starved because bankers are nervous about lending to them. Expect starts of 1.26 million next year as banks loosen up. Meanwhile, the urge to buy will express itself partly in sales of existing homes, which Barbara Allen of Kidder Peabody thinks will be up 4.8% this year to 3.455 million and 5.6% in 1992. -- OIL AND GAS: Pumping up capacity. Stable postwar oil prices mean no more fat windfalls for producers but promise better profits downstream in marketing and refining. The U.S. benchmark, West Texas Intermediate crude, began 1991 at $27 a barrel and will likely end the year around $20, according to Bernard Picchi of Salomon Brothers. Earnings for the major U.S. oil companies will rise about 17% in 1991 and 9% next year. Capital spending will climb 15% in 1991, with the greatest increases at Mobil, up 25%, and Chevron, up 17%. Some will go for pollution-control equipment, but Picchi also looks for more drilling because of ''a remarkably healthy environment for the reinvestment of | cash flow.'' New technologies, such as 3-D seismic exploration, have helped cut the cost of finding new oil in the U.S. to a third or a quarter of what it was a decade ago. And Third World countries are newly eager for Western capital, technology, and management skills. Says Picchi: ''We are on the verge of reintegrating the world oil industry.'' Demand is expected to rise for natural gas, which is both more plentiful and more environmentally benign than oil. Several major pipelines are under way, including the Canadian-led Iroquois Gas Transmission System's project to supply more than 500 million cubic feet per day to the Northeast. Among the promising future markets, says Amoco chief economist Ted Eck, are electric and industrial power generation, residential home heating, and fleet vehicles. -- METALS: Troubles all around. Steelmakers, feeling the heat from both the economic slump and mini-mill competitors (see Steel), can nevertheless be thankful they don't make aluminum. Producers are facing the worst imaginable scenario: backed-up inventories, declining orders -- and continuing overproduction. The industry is operating flat out despite the global slowdown. Rising inventories will depress prices of both ingot and fabricated products. The result, says J. Clarence Morrison of Prudential Securities, is a severe profit-margin squeeze. Ingot, which traded as high as $1.90 in mid- 1988, is currently 59 cents a pound and could fall as low as 50 cents. Copper, too, suffers from excess capacity, but production problems in several countries will limit the damage. Morrison thinks prices will average $1.00 a pound, vs. $1.19 last year. Though the turnaround should lift world consumption 3.1% next year, he says, prices could fall to 90 cents if producers solve their problems. Demand for nickel is running ahead of supply. The use of stainless steel, which consumes 64% of nickel production, could rise almost 4% per year until 1995, in part because pollution-control equipment requires lots of it. But several suppliers are in trouble, including the Soviet Union, where strikes and technical problems this year may choke off 75 million pounds -- 25% of output. Morrison thinks prices could rise from the current $3.85 a pound to over $5 in the next 18 months. -- PAPER: Crumpled. Like officers of a supertanker heading for an iceberg, the captains of the paper industry can only brace themselves for collision. Plants commissioned and started during the boom times of the late Eighties are coming onstream. The American Paper Institute reports that capacity will increase an average of almost 3% a year through 1993, just as demand is sliding. Says George Adler of Smith Barney: ''What we have is an unmitigated depression on prices and earnings.'' The strengthened dollar also blunts the competitive edge papermakers enjoy in world markets. The U.S. is still the low-cost producer, but it may be unseated by Sweden, where relative costs are already down 15% this year. Revenues will fall 5% in 1991, with earnings plunging 30%. Gary Palmero of Oppenheimer sees a slow turnaround for 1992, when revenues will climb 15%. Earnings will jump 25%, but the growth will be coming off such a small base that actual profits won't amount to much. Strong earnings are unlikely until 1993, says Palmero. Experts expect the weak outlook to encourage more mergers. Environmentalists are giving forest products companies fits. The U.S. Fish and Wildlife Service is hoping to declare 11.6 million acres of the Pacific Northwest off-limits for logging because it is the habitat of the endangered spotted owl. Companies may be restricted from harvesting three million acres of their own lands. -- CHEMICALS: A commodity glut. No one knows better than commodity chemical makers that the business cycle lives. Overcapacity from the building boom of the late Eighties will keep prices declining well into 1992. ''The mentality of running the business has not changed much,'' says Prudential Securities analyst Leonard Bogner. ''Producers are offering major price concessions to defend market share.'' Earnings will fall 20% to 25% this year, he predicts. Nevertheless, rising volume in 1992 will push up operating rates, making a big difference to the bottom line. While sales will increase only about 5%, profits will rebound 14%. The woes of commodity manufacturers are good news for specialty chemical makers, which compete more on technology than on price: Lower raw-material costs mean wider profit margins. Karen Lane Gilsenan at Merrill Lynch expects that earnings will advance 8% to 10% this year and 20% in 1992. On the downside, the stronger dollar and slow growth abroad may hurt the many companies that do half or more of their business overseas. -- COMPUTERS: Byte-size gains. Sales will rise by just 6% in 1991 and 10% in 1992, says Barry Willman, an analyst at Sanford C. Bernstein. One reason: Half-baked attempts at open systems and shifting software alliances have confused customers. Depending on whose view you subscribe to, long-run demand for mainframes, which account for 30% of the U.S. market, is either drying up as companies substitute networks of small computers or due for a growth spurt once users retire old machines (see Cover Story). Either way, sales are on hold now, partly because would-be buyers are waiting for faster and more powerful models coming from IBM and Amdahl soon. Gartner Group analyst Randall Brophy, representing the skeptics, says sales will be down 4.1% this year and up a mere 2.6% next. Willman, a mainframe maven, expects sales to be flat in 1991 and up 8% in 1992. Smaller computers will generate more sparks. Brophy predicts PC sales will increase 13% in 1991 and 17% in 1992. Most of the growth will come from workstations and high-end PCs and portables. Profit margins on standard PCs will be peeled away, led by Apple's aggressive price cutting. Shipments of workstations should increase 30% this year, according to the Commerce Department. Despite increasing competition, creativity still yields high profit margins for software makers -- often in the 80% range for PC software. Revenues will grow 15% in 1991 and 19% in 1992, says Brophy, led by Microsoft's best-selling Windows. What's so hot about Windows? Says Bill Laberis, editor-in-chief of Computerworld: ''The productivity gain is so great that people are willingly upgrading other software to use it with Windows.'' A Windows version of Lotus 1-2-3 goes on sale this summer. -- INDUSTRIAL EQUIPMENT: Lagging behind. The grind continues, and nowhere more than in construction equipment. Manufacturers are now swamped with inventory, and unit sales will be down 12% to 15% as a result. The glut will be gone by mid-1992, and sales will inch up 5% to 8%, according to Frank Manfredi of Manfredi & Associates, a market research firm. Growing exports will help a bit. Enormous infrastructure projects are under way around the world; Taiwan alone plans to spend $303 billion over the next six years, says Richard Sweetnam of Kidder Peabody. Heavy-truck unit sales, down 16% this year, will climb 20% in 1992. As the recovery picks up, says Steven Colbert of Prudential Securities, companies will be replacing their aging fleets. Colbert expects machine-tool makers, too, to benefit from higher capital spending next year. Orders will rise 12%, after a flat 1991. Industry giant Giddings & Lewis will see earnings improve 6% this year and 15% in 1992, not including the acquisition of Cross & Trecker, according to Colbert. Farm equipment sales will be flat this year, and heavy discounting will dent profits badly. But if a good harvest lifts farm earnings, says Sweetnam, equipment sales could rise 10% to 15% in 1992. -- AIRCRAFT: On autopilot. It looks like a license to print money. Airlines need to replace aging planes, particularly as stringent antinoise laws render more of them obsolete, and traffic just keeps growing. Thus, the order books of U.S. planemakers are full for at least three years, and the main constraint on growth is capacity. But one caveat: Since traffic growth is responsible for 70% of the new aircraft ordering, struggling carriers may delay delivery of new planes. Otherwise, says the Aerospace Industries Association, manufacturers expect to deliver 600 units in 1991, a 24% sales increase worth an estimated $27.6 billion. The industry's problems, such as they are: At Boeing, heavy R&D expenses for the new 777 family of jetliners will eat into profits, says C.J. Lawrence analyst Howard Rubel. McDonnell Douglas will deliver its promising MD11 this year, resulting in a healthy spurt in revenues, but the company may begin looking for a partner to share costs as it moves forward with this new line. -- TELECOMMUNICATIONS: Cellular hits a snag. It was everybody's growth fantasy, but now that sound you hear from your cellular phone is an SOS call. Annual growth in subscribership has fallen from 50% to 25%, says John Malone, president of Eastern Management Group, a consulting and market research firm, and new customers are hanging up their car phones at an astounding 30% rate after signing up. Malone calls it ''the most vexing problem the business has ever faced.'' The glitch is cost. Malone calculates that an average yearly bill is $1,080, and the average customer earns $44,000 a year. Even with the recession ending, he says, ''few people are willing to set aside 30% of their discretionary disposable income for cellular entertainment. Churn will bring the industry to its knees if it can't arrest the problem.'' Two culprits: deadbeat users and high commissions paid to equipment dealers. Long-distance phone lines are singing a happier song. International calling will grow 20% through 1992 as proliferating agreements between countries pave the way for a truly global network. Domestically, Gartner Group's Joseph Baylock expects volume to rise 8% in 1991, lifting total revenues to $54 ! billion, and 6% in 1992. Both abroad and at home, data transmission will be a hot source of volume. Baylock notes that profit margins will be squeezed if AT&T gets permission to compete more on price -- a decision the Federal Communications Commission could make by the end of summer. -- ENVIRONMENTAL SERVICES: Cleaning up. Born of regulation, this glamourless business is faring better than most. For companies that deal with plain old solid waste, revenue growth will slow from a lofty 15% to 20% annual rate to 10% to 15% this year, says Stephen Lipmann, until recently with SoundView Financial Group, and will continue at 15% or more in 1992. Profits will increase 10% to 15% in 1991 and 15% to 20% in 1992. The hazardous waste business will take a similar hit in 1991; next year revenues will be up 18% to 20%. Manufacturers that use environmental services are postponing as many projects as they can. First Analysis Corp., a Chicago research firm, forecasts that earnings will flatten in 1991 before resuming growth at a rate of 20%, a result of improved operating leverage and a pickup in industrial activity. Companies that supply engineering services and so-called remediation can count on the Energy and Defense departments to spend some $100 billion over the next five to ten years cleaning up sins of the past. Earnings for this sector will grow 15% this year and 20% next. Air-pollution-control equipment, a $5 billion business this year, will see little growth until 1993. Many potential customers are holding down on spending and buying low-sulfur coal to meet Clean Air Act requirements, says Ken Leung of Smith Barney. -- UTILITIES: Powering up. Even before the recession ended, a cool winter and an unseasonably warm spring lifted demand. Goldman Sachs analyst Ernest S. Liu expects unit sales to grow 3% annually through 1992. Earnings, however, will increase only 2.7% this year and 2.5% to 3.0% in 1992, says Douglas Preiser, an analyst at Kidder Peabody. Problem: Capital spending is rising after seven years of decline. Utilities must build new plants and add pollution controls mandated by last year's Clean Air Act. Liu says that spending for plants should be up 4% this year and 7% in 1992. But regulators are unlikely to allow comparable rate increases. Instead they are nudging utilities to reduce demand. Two dozen states have or will soon pass laws that allow rate increases for utilities that encourage consumers to use more-energy-efficient equipment. More states are sure to follow. The utilities would spend still more if it weren't for so-called independent power producers that sell electricity to utilities for distribution. If financial and geographic restrictions in the Public Utility Holding Company Act are eased, as recently proposed, utilities would be freer to own pieces of this unregulated, highly profitable business. -- AIRLINES: Poised for takeoff. Airlines are filling seats again, but at a price. What analyst Raymond Neidl of Dillon Read calls ''fire sales'' -- winter discounts that must be honored through the end of the summer -- have put earnings for the year into a nose dive. Lee Howard, CEO of the Airline Economics consulting firm in Washington, D.C., predicts an operating loss of $1.5 billion this year. But 1992 will begin a strong recovery for the rest of the decade, he says. The industry's ''final shakeout,'' now under way, will leave five or six carriers with no need to discount feverishly in an effort to maintain cash flow. Consumers will find more bargains abroad if the European Community opens its markets and doesn't cave in to protectionist pressures from carriers whose productivity is one-third to one-half that of U.S. airlines. -- TRUCKING: Into the ditch. Rate increases and fuel surcharges helped stave off disaster in 1990, but the recession caught up with truckers in the first quarter of 1991. Income for the 117 largest carriers dropped 58% from the same period last year, and hundreds of tiny truckers folded. Some sectors will bounce back before others. Moving companies should get more business later this year as the housing market thaws, and truck lessors should benefit as manufacturers step up production but remain leery of buying more vehicles. For long-haul truckers, the recovery won't help earnings until 1992 -- costs are up, and traffic is too light to sustain rate increases, says Merrill Lynch analyst Douglas Rockel. While revenues for the industry will hold steady this year, he says, earnings will fall 15%. But next year's revenue growth of 8% to 9% will produce a 30% profit surge -- mainly because carriers who haul less-than-truckload burdens will be running with heavier loads while driver and fuel costs stay under control. The money will flow mostly to companies stressing service, says analyst Richard Holt at Wheat First Securities. These include short-haul and regional carriers that can deliver goods quickly to inventory-conscious customers. Long-haul outfits specializing in truckloads of freight will run up against railroads that are getting better at competing. -- MEDIA: Sweating it out. The chill on corporate advertising budgets gave the media a nasty flu. Ad revenue at newspapers, magazines, and network television dropped sharply in the first quarter. The only winners were the cable networks and syndicated television. But the worst is over, says Robert J. Coen, director of forecasting at the McCann-Erickson advertising agency. ''Next year should be pretty good -- it could be the difference between night and day.'' Sunrise will come before year's end as advertisers lift spending for the holidays, producing a 3.1% increase for the year as a whole. Next year, says Coen, the Olympics and the presidential election will help raise ad expenditures 8.5%. Newspaper profits will slide 15% to 25% in 1991, says analyst John Reidy at Smith Barney, but will rebound about 20% in 1992 as hiring and consumer spending pick up. No such luck for magazines. Higher postage costs and heavy discounting of ad rates have eroded profit margins. ''I know of no major magazine publisher whose profits are up year over year in 1991, and I think they'll continue to be in that situation in 1992,'' says Peter Appert, a media analyst at C.J. Lawrence. He predicts that advertising sales, which represent about half of revenue, will be flat in 1991 and up 3% to 4% in 1992. Swollen news budgets and lost advertising hit the three networks hard during the Gulf war. Now advertisers are buying time for the new season at discounts of 5% to 10%. Network profits will fall 30% to 50% in 1991, says analyst Alan Gottesman at Paine Webber, but could double next year as advertisers come back. -- BANKS: Turning the corner. The bills for the wishful thinking of the Eighties came due last year, making it the worst for banking since the Great Depression. America's 100 largest banks made just $9.5 billion on $2.4 trillion in assets. But the hardest part is over. Profits will improve slightly in 1991 and climb 6% to 7% in 1992, says Thomas Hanley at Salomon Brothers, who follows the 50 largest U.S. banks. A spate of equity offerings in the first half allowed banks to raise capital, and lower interest rates have widened the spread between cost of funds and lending rates. Lending activity and loan quality should begin to improve by year-end. Continuing cost control and lower provisions for loan losses will also help, says James McDermott, president of bank analysts Keefe Bruyette & Woods. Hanley looks for + a wave of consolidation among the nation's 12,000 institutions ''the minute credit quality stabilizes.'' -- FINANCIAL SERVICES: Enriched by investors. Brokerage firms have cleaned up in this year's volatile bull market. One knowledgeable source estimates that Wall Street's first-quarter profits alone will top $1 billion, equal to earnings for all of 1987, making last year's loss of $160 million an unpleasant memory. Stronger underwriting activity will help during the next 18 months, says Wall Street watcher Alison Deans at Smith Barney; overleveraged companies want to increase their capital and pay down debt. Investment bankers will profit as banks continue to shrink assets by securitizing and selling off mortgages and credit card loans. Life insurers are staying alive thanks to aging investors who worry that Social Security and corporate pension plans will leave them short at retirement. While life insurance sales are flat, demand for annuities is growing at an annual rate of 20% to 25%. Donaldson Lufkin & Jenrette analyst David Seifer expects earnings to increase a modest 5% annually in 1991 and 1992. Commercial property and casualty insurers are caught in a competitive vise, unable to raise rates as underwriting losses mount. In addition, more of their customers are turning to self-insurance to avoid taxes and commissions. Seifer expects profits to drop 4% in 1991 and 7% in 1992. Personal property insurers could be the industry's bright spot as market leader State Farm raises rates in some states by the end of 1992 and others follow.