STRICTLY BUSINESS: MANUFACTURER OUTLOOK 1995: `CAUTIOUS OPTIMISM'

There's some good news and bad news in the forecast for Missouri manufacturers.

The good news?

During 1994, employment has been fairly steady and sales have been strong. Some industries saw more fluctuations than others, with printing, construction-related manufacturing and food products making substantial gains. Motor vehicles, aircraft and chemical industries had slight downturns.

However, business, said Sheelah R. Yawitz, president of the Missouri Merchants & Manufacturers Association, was generally good.

"Indications are that the trend will continue," she added.

Where is the bad news then? The "X-Factor" is the significant increase in the cost of the raw materials companies are absolutely dependent for turning out finished products and delivering the goods.

Interest rates could also affect the manufacturing industry, Yawitz said.

"Manufacturers do borrow money," she said. "And, if interest rates keep going up, they will have to do some re-evaluating."

Virtually all of the commodities are going up in price, Yawitz said. But, according to several owners of small and mid-sized manufacturing concerns, some of the biggest culprits are corrugated cardboard, newsprint and packaging materials. Increases of up to 46 percent in the cost of newsprint have been seen by some newspapers, and increases up to 40 percent have become commonplace for packaging materials.

Why? Speculation is the rapid surge in manufacturing across the globe has created a huge increase in demand for these materials from U.S. suppliers.

The challenge for 1995, Yawitz said, will be to keep profit margins from shrinking in the face of increased raw materials costs and the possible cooling effect of rising interests rates. Passing on increases to customers where the market will bear it, keeping employment and production costs in line, and finding alternative sources for materials will be strategies of choice.

Though some industries are attempting to pass increased costs along in the way of price increases, they fear repercussions. Others are wary to try.

Orders for goods on a contract basis are also being held captive to fixed pricing, and manufacturers simply can't respond to cost fluctuations. Ditto for some retail markets, which generally count on guaranteed pricing for six months to a year.

One large machinery manufacturer is faced with being squeezed by global-international competition and a market that won't support price increases. A chemical manufacturer is cutting its losses by buying corrugated packaging from surplus whenever possible and installing automatic filling machines on the line to improve efficiency.

While major wage increases are unlikely, it is good news to hear of intentions to retain employees and preserve jobs. And though other challenges, including the cost of compliance with complex government regulations, uncertain fiscal policies and rising material costs are to be met, there is an outlook of "cautious optimism" for 1995.

Raymond Worseck puts it another way:

"It could be sunny skies but cooling temperatures," says the chief economist of A. G. Edwards & Sons Inc., an investment company, who says he expects the economy to continue to grow but at a slower pace.

Worseck anticipates GNP growth to reach only 2.8 percent in 1995, compared to 4 percent for 1994.

"We saw a surge in real GNP growth, which estimates the value of our goods and services in 1994," he said. "I don't think you'll see the economy keep up that pace much longer."

Inflation also contributed to the tempered optimism.

"Inflation has not been as bad this year as people feared," said Marsha Limbaugh, branch manager of the A. G. Edwards Cape Girardeau office,

Worseck agreed, saying U.S. consumer price inflation should rise only modestly, from 3 percent in 1994 to 3.3 percent in 1995. Worseck also believes the Federal Reserve will hold interest rates at current levels until the beginning of next year.

Fed policy-makers meet for the last time this year Tuesday and some analysts say they will most likely decide to boost interest rates either at that meeting or at their first meeting of 1995 on Jan. 31.

Ray L. Robbins, research director with Edwards D. Jones & Co., an investment company, agrees that inflation is likely to climb only a few percentage points in 1995, from 3 to 3.5 percent.

The Edward D. Jones Research Department will present a live satellite broadcast of its "1994 Year in Review & Outlook for 1995" on Thursday, Jan. 5. Special guests on the broadcast will be Donald G. Soderquist, vice chairman and chief operating officer of Wal-Mart and H. Bradlee Perry, senior partner of David L. Babson & Co., and author of the Babson Staff Letter.

The telecast will be aired simultaneously from Wal-Mart headquarters in Arkansas and Jones' headquarters in St. Louis.

"Viewers will have an opportunity to ask questions," said Joe Domian, a Jones representative at Cape Girardeau. "For investors who would like to know the outlook for 1995, this is a must-see program."

Additional information concerning the live broadcast are available from local Edward D. Jones investment representatives.

New record-keeping changes

A pair of record-keeping changes involving "donations to charity" are in effect for the 1994 tax year.

"These changes may affect you," said Nova Felton of the St. Louis Internal Revenue Service district office.

One of the changes involves contributions of $250 or more.

To claim a deduction of this size, you will need to get a written acknowledgement from the charitable organization.

If you pay by check, Felton says, it is still a good idea to keep copies of canceled checks, but, "the canceled checks alone will no longer be good enough."

In most cases, each payment counts as a separate contribution. That means, for example, that if you donated $100 to a charity in May, and another $200 to the same group in October, you will not need to get a written acknowledgement. But, two or more checks to the same charity on the same day will be treated as a single contribution.

Many organizations routinely issue receipts for contributions of any size and the IRS says it is still a good idea to keep these acknowledgements, even if your contributions are less than $250.

Another change affects so-called "quid pro quo payments."

These are payments for which the giver receives something of value in return, Felton said.

A charity must issue a statement for each payment of this kind it receives that is more than $75. Among other things, the statements must estimate the value of goods or services received by the donor.

A statement would be required if, for example, you attend a fund-raising dinner costing $100, but is worth only $40. In this situation, the IRS points out, you could only deduct $60 as a charitable contribution.

In future columns we'll take a look at gambling winnings, which are taxable, within limits, and gift taxes.

New on business scene

A new check-cashing service will open in Cape Girardeau early next year.

"Checksplus," which will cash checks, issue money orders, provide money wiring services and fax services, will open in the Town Plaza Shopping Center Arcade.

"We'll do a lot of things here," said Ken Comer, owner of the business. "We'll sell lottery tickets, provide tax preparation service and make short-term, payday loans."

The new business, expected to open Jan. 1, will be open 9 a.m. to 6 p.m. Monday through Thursday, 9 a.m. to 7 p.m. Friday and 9 a.m. to 3 p.m. Saturday.

Elsewhere:

SIKESTON -- Missouri Delta Medical Center officials held a groundbreaking last week for its new family care center.

The $4.2 million, three-level, 40,000-square-foot center, will house four labor, delivery and recovery rooms, a surgical suite, Level I and II nurseries and office and meeting room space.

Construction is scheduled to be completed in 18 to 24 months.

DONIPHAN -- Lignetics Inc., headquartered in California, has opened a new quality assurance laboratory at its plant in Southeast Missouri.

Lignetics, a manufacturer and nationwide marketer of premium quality sawdust pellets for wood pellet stoves and industrial furnaces, opened its 50,000-square-foot Missouri plant in Doniphan in December 1993.

The Doniphan plant provides pellets to markets east of the Rockies. The plant is equipped with a state-of-the-art drying facility that is computer controlled to provide consistent pellets. The pellets are made from sawdust, which is obtained from lumber mills.

Lignetics also produces Friends Freddy Fire Starters and Fire Starter Discs.