It had to end sometime, but we'd all rather it would have ended with a whimper rather than such a loud bang. The nation's long run of very good economic luck came to an abrupt halt in 2001.

Economic historians will record that America's longest period of economic prosperity ended sometime during the third quarter of 2001 (the precise date to be determined in a year or so, courtesy of the official arbiters of the business cycle—the National Bureau of Economic Research). The last recession ended during the early spring of 1991, so we had enjoyed more than 10 years of uninterrupted economic growth. But now the best we can reasonably hope is that we're in the middle—not just at the beginning—of the current period of recession (or "negative growth" in Gross Domestic Product).

Prior to the Sept. 11 terrorist attacks, the U.S. economy was already walking a tightrope. Manufacturers' new orders were falling, unemployment was rising, and retail sales were sluggish. There were, however, some positive signs as well. Home sales remained strong, interest rates were low, consumer confidence had stabilized, and federal tax rebate checks had the potential to boost retail sales during the critical holiday season.

But a metaphorical earthquake hit the nation on September 11, and the devastating physical and psychological damage caused by the terrorist attacks made a recession unavoidable. Would we likely have fallen into a recession anyway? That question is impossible to answer. Given the past resilience of the consumer sector and signs the severe retrenchment in business investment spending was bottoming out, there was a better than even chance that we would have gotten through the challenging economic angst battered but still standing.

Still, the indeterminate economic impact and political uncertainty from Sept. 11 and the aftermath renders standard forecasting models all but useless. It's difficult if not impossible to quantify, much less predict, the economic impact and ultimate consequences of the war against terrorism. However, the short-term result has been to throw the U.S.—and maybe the rest of the world—into recession.

The only questions with any real importance, to businesses trying to plan for the future, are: "How long will the recession last?", "How deep will it be?", and "Where do we go from here?" And the only honest answers are all the same: "Your guess is as good as mine." Economic forecasting is difficult and subject to plenty of caveats and heroic assumptions even in the best of times.

Nevertheless, there is a general consensus developing among those who have outlined the "most likely" scenario for the year ahead that the U.S. economy won't grow much more during 2002 than in 2001. Which is to say, not much at all. Following GDP growth of 4.1% during both 1999 and 2000, it now looks like the U.S. economy will be lucky to expand by 1.1% during 2001.

This factors in declines for the final two quarters of the year (thus meeting the customary definition of a recession), coming after a period of diminishing growth over the first half of 2001. And, given the importance of the U.S. economy (an estimated 28% of worldwide GDP) to the world as a whole, a severe global slowdown is likely to unfold as well.

The arguably "bright" side of this scenario is that we're likely to enjoy low interest rates and low inflation next year. The Fed has made it clear that they will pursue as loose a monetary policy as is necessary to maintain the integrity of the global financial system. And weak worldwide demand will keep commodity and materials prices low, while at the same time dampening wage/benefit costs.

Furthermore, in the aftermath of the terrorist attacks, President Bush and Congress have committed to an economic stimulus package worth between $70-$120 billion. Although the details are taking a predictably long time to work out, it's clear that consumers will benefit from additional tax rebates/cuts and that businesses will enjoy at least temporary benefits from investment tax credits and accelerated depreciation schedules.

However, as we entered the final quarter of 2001, production and orders were down still more from the depressed levels of late summer, and unemployment rose to 5.4% in October. A business investment pattern that seemed ready to plateau had resumed its steep downward slope. And consumer demand had, depending upon the specific market segment, either stagnated or declined in the several weeks since the initial terrorist attacks. Overall, there's now a "wait-and-see" attitude from both business and consumers, because of the enormous degree of uncertainty. This in itself has been more than enough to send a skittish economy into full-blown recession.

The U.S. economy is in reasonably good shape, and there are very few of what economists call "imbalances." Unlike the last recession, neither housing nor commercial construction markets are overbuilt. Building activity has fallen since the recession began and vacancy rates have risen, but there's not the huge inventory of speculative space that burdened the market in the early 1990s. And manufacturers, wholesalers, and retailers have all been working for almost a year now to pare excess inventories. These factors will all cushion the current blow, and put us in a good position to realize solid gains in activity once the recovery materializes.

Still, these are perilous times. For the first time in more than 50 years, there's danger of not just a worldwide economic slowdown but an actual global recession. This would mean that for at least two quarters of time, worldwide GDP (difficult as it is to measure consistently) would contract in absolute terms, and not just expand at a lower rate. Although it's still unlikely this scenario will come to pass, it's a credible threat should the geopolitical environment become more chaotic in the months ahead.

As we entered the final eight weeks of 2001, however, economic forecasts still anticipated at least modest growth this year throughout most of the world, with improvement by the middle of 2002 in the majority of nations. That's not surprising given the importance of the engine of U.S. economic growth to the rest of the world.

As the U.S. goes, so goes most of the rest of the world in this age of increased globalization. International trade volumes have exploded over the past decade. The U.S. economy today is much more closely tied to the economies of the rest of the world than it was during the 1990-91 recession. This increased interdependence means that any pick-up in the fortunes of the U.S. would be quickly transferred to our major trading partners, and would help reinforce and even accelerate a global economic recovery. Conversely, any further deterioration in the U.S. economy could very quickly lead to even less consumer and business demand for products made elsewhere in the world.

However, given the checks and balances of modern economic systems, and the sophistication of economic policymakers in the U.S. and the other great nations of the world, a total loss of control over global economic forces is highly unlikely.

Although there are widely-divergent opinions about the direction of the world economy, a sensible "anchor" is the analysis and forecasting done by the World Bank. In mid-October, this well-respected body said that the U.S. economy is likely to expand 1.1% this year and 1.0% during 2002. Both forecasts had been revised downward by a significant amount in the aftermath of Sept. 11. And this Washington-based lending institution said that they saw the Japanese economy shrinking by 0.8% in 2001, with growth rising to an anemic 0.1% next year, and a modest 2.4% during 2003. They predicted 1.5% growth in Europe this year, just 1.3% next year, but 3.6% during 2003.

So the worldwide scenario advanced by the World Bank is sober, but hardly "doom and gloom." Overall, it sees world GDP growth of just 1.3% this year—down dramatically from the 4.0% gain recorded last year. Then, GDP gains are expected to accelerate slowly to 1.6% next year and then to a comforting 3.9% during 2003.

So, what does all of this mean for converting industry manufacturers, suppliers, and distributors? Well, in a general sense, the fluidity and unpredictability of the year ahead means that the direction of the global economy (with special emphasis, as always, on U.S. markets) is more important than ever. Plunging confidence, higher unemployment, and slow or no growth in household income can't help but negatively affect the consumer nondurable markets.

The "upside" is that consumers are likely to spend an increasing share of their income on essentials. The "cocooning" phenomenon identified in the past by sociologists was already becoming apparent in the weeks following the terrorist attacks, as home repair spending, home improvement store retail sales, and retail sales of grocery and other "smaller ticket" consumable items all held up much better than other economic indicators.

Converters enter this recession in reasonably good shape, especially as defined by global trade patterns. While overall U.S. exports were 2.0% lower over the first two-thirds of 2001 than during January-August of 2000, the markets for most consumer nondurables have actually expanded solidly during the past year. In contrast to the shrinkage in the total export value, the amount of U.S. dairy product (+13.2%), alcoholic beverage (+14.8%), pharmaceutical (+15.4%), and cosmetics/toiletries (+17.7%) exported had grown at an impressive rate through the first two-thirds of this year. Although we don't expect these gains to hold over the balance of 2001, overseas market opportunities for U.S. consumer-nondurables makers are unlikely to completely evaporate either.

In relative terms, converting markets should be less severely impacted by the recession of 2001-2002 than durable goods consumer industries or capital-intensive business markets. This may be small consolation as the advantages of nondurable-goods purchases may completely erode should the worst-case global recession come to pass. But it does allow converters to hold out hope that some potentially profitable market opportunities may materialize in 2002.

The total dollar value of consumer nondurable goods shipped by U.S. manufacturers through the first two-thirds of this year was 1.7% greater (before any adjustment for inflation) than during Jan-August 2000. This represents a growth rate sharply lower than the 9.8% gain realized in nondurable consumer goods between 1999 and 2000. Overall food shipments this August were worth 5.4% more than during August 2000, and on a cumulative year-to-date basis shipments for the first two-thirds of 2001 were running 3.8% ahead of the total recorded over the first eight months of 2000. Through the first two-thirds of 2001, the value of pharmaceuticals/medicines shipped was running a scant 0.2% ahead of the January-August 2000 total—a dramatic comedown from the 12.9% expansion registered between 1999 and 2000.

In the aftermath of the terrorist attacks, growth rates will undoubtedly decline across the board—and our full-year 2001 forecast reflects this. But if economic recovery is slowly solidified by the middle of next year, nondurable consumer-goods shipments should look much better over the second half of 2002.

Production numbers (essentially a unit count of output) is similar. Through the first three-quarters of 2001, U.S.-based consumer nondurables output was running a scant 0.1% ahead of the January-September total. And the September production level (reflecting much of the initial fallout from the terrorist attacks) was 1.9% less than during September 2000. The market was heading inexorably lower.

All of this gathering economic weakness has depressed global demand for commodities and raw materials used by the various converting sectors. This has come at a time when there's ample worldwide supply and production capacity for most items. The result: downward pressure on average prices and lower inflation (and, in many cases, deflation). This means reduced costs for manufacturing inputs but also lower prices and profit margins for the final converted product.

The government's producer price survey shows that prices for plastic resins and materials were, on average, 9.3% lower this September than in September 2000. Deflation was also evident in such products as paper and metals.

Higher unemployment, lower consumer confidence, and a slower growth in household income will limit gains in consumer product shipments and retail sales over the final months of 2001. But the overall consumer sector should remain safely "above water" while most business-investment-related sectors continue to sink.

Most businesses—converting-market-related and otherwise—feel a new vulnerability, a new aversion to risk, and an increased awareness of the fragility of the JIT economy in the wake of Sept. 11.

But with challenge comes opportunity. Recessions don't last forever, and it's likely that the current one will be a not-too-distant memory at this time next year. Profitability and market share improvement are still attainable for well-managed, focused—and a little bit lucky—companies in the year ahead.