Looking Up
There are many signs that our economy is getting stronger. For one, exports by the main manufacturing countries are up sharply over the past three months. U.S. consumer spending is also on the rise. That said, there are two large risks that could affect a mild recovery or even cause a second recession.
The first risk, the U.S. Federal government’s recent spending spree has caused our national debt – when adjusted for inflation – to become higher than it was following World War I or World War II. This means that when our economy does get stronger and we export products, the wealth that we create goes to those who hold our debt (China, among others) rather than going to increase our standard of living. The other side of the China coin is that they need the U.S. consumer market for their products. They hold a lot of our debt, but the U.S. consumer helps drive their economy.
The second risk is the slow bank system failures of the weak European countries known as the PIIGS (Portugal, Ireland, Iceland, Greece and Spain). This would cause stronger European countries, such as Germany and France, to save them, hurting their economic recovery. Worse yet, would be a bailout from the IMF (International Monetary Fund), which gets most of its funds from the U.S. government. That means it comes from our federal income taxes.
In regards to steel, we will be one of the last industries to come out of the recession. The commercial and residential real estate sector is still declining nationally. There is too much supply everywhere. U.S. vacancy rates for office, retail and warehouse space are at their highest in two decades (even higher than the 1991 peak after the California real estate crash). The U.S. Department of Commerce has said that they may see the bottom in June. For manufacturing, the sectors to rebound first are high-tech, bio-tech, power, and telecom. Heavy equipment, auto, and building materials will be the last ones out.
A sign of encouragement
Our steel shipments have increased, along with our industry average, for five months in a row. Imports have declined almost 50 percent versus last year for all steel types. Rebar imports are at their lowest since 1995 and China is ramping up energy production and infrastructure projects. That is actually good for us, as they consume more steel internally. What would really help the steel industry in the short term would be to magically change the stimulus expenditures that went to unions and public employee pension funds into expenditures that build large power and transportation infrastructure projects. Does anyone have a magic wand?
What does all of this mean for our company and yours? My thought is to focus on what you can control. The need is there to focus on finding new customers in emerging markets, controlling costs, improving quality, and taking care of your customers.
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