Levy Economic Forecasts has been predicting the economic future for 36 years now, and never has that future seemed so bleak. "The erosion we've been seeing in most sectors of the economy will be getting worse," says partner and senior economist David A. Levy, whose firm's forecasts are often quoted in the business press. "We are headed into a period that we think will be the most serious recession of the postwar era. "In the midst of such pessimism, Levy Economic Forecasts suggests several ways to prepare for the worst.
* Inventories: Levy advises companies across the board to pare down their inventories, even if it means cutting back on production. Industrial products will be hit harder than consumer goods, but both areas will soon be faced with inventory that will be increasingly difficult to move. "My advice is that if a company is debating about whether to make a sacrifice now, or wait and hope that things will get better, don't hope. Play it safe and start cutting back now."
* Business expansion: To an unprecedented degree, says Levy, this economy is overbuilt. "There is an excess of office buildings, stores, shopping centers, factory space. The nonresidential construction industry will face a very serious downturn, and property values will be falling sharply." For any company that can't avoid expanding, "I would play it very conservatively," Levy says. "I would rent rather than buy; I would use outside services when possible, rather than add on in-house capacity; and, if I had to buy space, I would get a variable-rate mortgage."
* Interest rates: Levy's prognosis is downward. "Therefore, I would be very cautious about locking into liabilities at today's long-term interest rates," says Levy. "If you have to borrow, borrow in the short term, and anticipate that interest rates will decline further."