'It's the economy, stupid'

WWW.THEFABRICATOR.COM JANUARY 2009

January 13, 2009

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The annual "Fabricating Update" survey of metal fabricators about their main business concerns revealed that the economy, which edged out steel prices as the industry's leading concern in 2008, now outranks all other concerns by a huge margin. This latest survey also polled readers of "Stamping News Brief" and "Tube Talk" for an even greater sampling of the metal manufacturing industry.

Global Economic Crisis

The results are in and they are not surprising. An overwhelming majority of respondents to an annual survey of metal fabricators ranked the economy as their No. 1 business concern.

For the past five years, the "Fabricating Update" e-newsletter has surveyed its subscribers about various concerns affecting their businesses. The latest survey, which ran in the December 2008 issue, also appeared in the December issues of "Fabricating Update" sister e-newsletters "Stamping News Brief" and "Tube Talk." Among respondents, 88 percent of both "Fabricating Update" and "Stamping News Brief" subscribers chose the economy as their No. 1 concern, as did 84 percent of "Tube Talk" subscribers.

Apparently, most agreed with the respondent who used a phrase commonly repeated during Bill Clinton's successful 1992 presidential campaign against George H. W. Bush when he wrote, "Partisan talking points aside, 'it's the economy, stupid' is really the root of everyone's ills—whether they understand it or not."

"Fabricating Update" Subscribers' Concerns

The No. 2 concern for "Fabricating Update" subscribers who said that the economy was their greatest concern was steel prices (19 percent), followed by the skilled-labor shortage and health care (17 percent each); unfair trade/tax policies (10 percent); foreign competition (8 percent); materials availability, energy prices, and overvalued dollar/undervalued foreign currencies (5 percent each); and interest rates (2 percent). Twelve percent of respondents cited other concerns, such as " finding new, good-paying customers"; " surviving this beginning depression"; " credit drying up"; and " illegal immigration and all the foreign-made goods coming into this country."

Several subscribers said that all of the factors were interrelated and equally important, while some said none of those listed were their primary concerns. One respondent who works for a metalworking equipment manufacturer wrote, "These [concerns] all miss the point. The availability of credit is most important in selling our products. Almost all of our final products require financing to purchase. If the financing is not there, the order rate goes to zero."

Among the small minority of "Fabricating Update" subscribers who said the economy was nottheir No. 1 concern, the skilled-labor shortage ranked highest at 28 percent, followed by steel prices (17 percent); unfair trade/tax policies (14 percent); health care costs (9 percent); energy prices and overvalued dollar/undervalued foreign currencies (5 percent each); and foreign competition (2 percent).

Eleven percent of this group chose the category other. A subscriber who works for a West Coast company that makes specialized products for various industries wrote, "I have concerns with a combination of regulations, taxes, deficit spending, and too many parasites asking for government handouts. If these items are handled correctly, the economy should correct itself."

"Stamping News Brief"Subscribers' Concerns

The No. 2 concern for "Stamping News Brief" subscribers who chose the economy as their greatest concern was steel prices (24 percent), followed by health care costs (19 percent); skilled-labor shortage (15 percent); unfair trade/tax policies (13 percent); foreign competition (11 percent); materials availability (5 percent); overvalued dollar/undervalued foreign currencies and energy prices (4 percent each); and interest rates (1 percent).

Those who chose otheras their No. 2 concern offered explanations that described their particular situations. "As a job shop, we have to keep the new work coming in to replace the obsolete work. This is our main concern," said one subscriber.

Others addressed how the performance of specific market segments affects their businesses. One wrote, "The downturn in the housing market greatly affects our portion of the manufacturing industry." Another wrote, "Our major concern is the automotive industry's problems."

Yet another subscriber wrote about a concern that could affect many manufacturers: "[I'm concerned about] the health of the supply base. We have suppliers going Chapter 11 every other day."

For those "Stamping News Brief" subscribers who said that the economy is nottheir No. 1 concern, the skilled-labor shortage drew the most votes (28 percent), followed by materials availability (16 percent); steel prices and unfair trade/tax policies (12 percent each); overvalued dollar/undervalued foreign currencies and foreign competition (8 percent each); and energy prices (4 percent).

Twelve percent of this group chose otherand cited various challenges such as " productivity," and concern about work from the U.S. Department of Defense drying up.

"Tube Talk" Subscribers' Concerns

The No. 2 concern for "Tube Talk" subscribers who ranked the economy No. 1 differed from the steel prices chosen by the other two newsletters' subscribers. No 2 for this group was health care costs (19 percent), followed by steel prices (14 percent); skilled-labor shortage (13 percent); foreign competition and unfair trade/tax policies (11 percent each); materials availability (9 percent); energy prices (7 percent); overvalued dollar/undervalued foreign currencies (5 percent); and interest rates (2 percent).

Among the concerns cited by the remaining 9 percent who chose otherwere customer credit availability and cash preservation. Addressing cash preservation, an automotive parts-maker wrote, "We are trying to weather the storm until the economy rebounds." A subscriber from a company that makes pipe fittings wrote, "[We're concerned about] matching demand to man-hours and cash conservation."

Of the 16 percent of "Tube Talk" survey respondents who did notchoose the economy as their No. 1 concern, steel prices and the skilled-labor shortage tied for first place at 23 percent each, followed by foreign competition (13 percent); health care costs and overvalued dollar/undervalued foreign currencies (10 percent each); energy prices (6 percent); and unfair trade/tax policies and material availability (3 percent each). Of this group, 9 percent also chose other.

With so many concerns, figuring out how to survive the current economic situation is daunting, and not just for metal fabricators. World leaders, including U.S. President-elect Barack Obama, have their work cut out for them trying to manage aid to multiple sectors that may have conflicting interests. It's a conundrum that may take many months and even years to solve, but at least the world finally knows what it's dealing with.

Calling a Recession a Recession

The economy made its debut as a survey selection a year ago. At that time economists labeled the economic climate as a downturn. Since then it officially has been called a recession that some say is second only in severity to the Great Depression, a global event that began in 1929 (80 years ago) and ended in the 1930s or early 1940s for different countries.

A year ago the economy also ranked as metal fabricators' No. 1 concern, although by a much smaller margin. In January 2008, 23 percent of survey respondents said the economy was their chief concern, followed by the skilled-labor shortage (19.8 percent) and steel prices (19.6 percent).

A lot can and did happen in a year. The stock market dropped 47 percent between October 2007 and November 2008. More than 2 million jobs were lost. Oil and gas prices spiked and then plummeted. Longstanding U.S. financial institutions and mainstay industries teetered on the brink of failure and asked Congress for help.

January 6, 2009, the U.S. Commerce Department reported that factory orders declined by 4.6 percent in November 2008, nearly double the 2.5 percent economists had predicted. This drop followed on the heels of a 6 percent decrease in October, and analysts predict that manufacturing will continue to suffer in the coming months.

However, in a statement released Dec. 27, 2008, Dr. Chris Kuehl, economic analyst for the Fabricators & Manufacturers Association International® (FMA), said a substantial economic rebound, particularly as it relates to U.S. manufacturing, might occur in 2009, but only if four factors trend in a positive way

What It Will Take to Recover

"Many factors come into play when predicting what must take place to spur growth, and one could go slightly balmy evaluating them all," said Kuehl. "However, four areas do stand out as the best barometers—developments in the financial sector, consumer confidence, exports, and commodity prices."

According to Kuehl, the financial sector needs to stabilize. "This has been the goal of the Federal Reserve and Treasury for months, but there has been scant progress," said Kuehl. "These efforts are based on monetary policy, so they do take awhile to bear fruit. We should start to see marked improvement by the end of the first quarter, including in the banking sector, such as some dramatic reduction in the London Interbank rates, more movement in the money markets, and banks more willing to do business with one another." Kuehl believes lower interest rates and extra liquidity should begin to make a difference in the first half of 2009.

Consumer confidence must recover. Acknowledging this is difficult to predict, Kuehl asserted prices and jobs play leading roles. "For the moment, the price situation is very positive as commodity prices have tumbled to record lows," he said. "This should continue in the short term, with even food prices beginning to decline. But the job front is different. Major layoffs that have been announced almost daily make consumers extremely nervous. If major job losses are behind us, people can catch their breath and assess. Then, if job prospects begin to improve, the consumer mood will quickly shift."

The lost luster of the export market must be regained. The surging U.S. export market in 2008 faded as the dollar gained against an even weaker euro, and the rest of the world experienced a down economy, according to Kuehl. "The dollar's current strength is likely short-lived, though, and that will promote U.S. trade," he said. "More demand also is required, and can happen if the Asian states and India succeed at stimulating their economies."

Lower commodity prices must remain low. "This is currently the best news available for the manufacturing community as prices for every industrial input have fallen for the past few months," Kuehl said. "Oil is down below $50 a barrel, and few see it recovering much in the next several months. Steel is down, and so are the other metals, everything from copper to nickel to aluminum."

Kuehl continued, "Although, in general, it is likely that the first quarter of 2009 will be in negative territory, and the second quarter is something of a tossup, there is good news soon thereafter. There is a consensus the third quarter will show some significant improvement, with the fourth quarter also likely to end up positive."

Thoughts From Fabricators

Some survey respondents shared their thoughts about where we are, how we got here, and what's ahead.

Some blame politicians. "Thanks to all the crooks in the White House, we're in a recession. Let them all take pay cuts and stop making blue-collar people suffer with concessions. Hold politicians accountable for all their wrongdoings!" wrote a subscriber who works for a steel service center.

Another who works for a company that makes metal cutting equipment wrote, "Congress and the media are to blame for the crisis we're in."

Others cited everything from the housing industry problems to gas prices and an unlevel playing field as being behind the U.S. economic woes, particularly in manufacturing. One wrote, "There is no way we can compete with a country that has no environmental restrictions. It costs us more to dispose of the coolant for our mills and lathes than the cost of the machinists."

Another wrote, "Unless your business is based on some process or skill that is not available offshore, foreign manufacturing taking away your market is [your] No. 2 [concern]; in some cases, No. 1. Globalization has hurt or destroyed more American businesses and jobs than helped. Given the amount of foreign government support these offshore manufacturers are getting, how can American manufacturers compete? When the field is truly level, American manufacturers can compete, and very well!"

What's the answer? A subscriber from Alaska wrote, "Bring outsourced jobs back to the U.S. Cut raw material shipments to foreign countries. Invest in country. Provide industrial training to U.S. citizens wanting U.S. jobs. When possible, buy U.S. products and materials only."

A subscriber who works for an Ohio Valley stamping company concurred. He wrote, "Let's bring the outsourced jobs and companies back to the U.S. Even if we have to pay 10 to 15 or 20 percent more for the goods— toys, tools, shoes— so what. At least we will know when we buy something, there is some 'Joe' out there working in [U.S.] factories making these goods, and he will be able to send his kids to college."

A more succinct agreement was offered by a subscriber who wrote, "It's time for the creation of jobs in the U.S., not 'saving' the financial industry. Creating jobs will fix the economy, not bailing out the banks and Wall Street."

Expressing a thought on many U.S. citizens' minds, regardless of occupation, one subscriber wrote, "This country and the manufacturing community are in a mess, and I certainly hope that [President-elect] Obama can rise to the occasion."



FMA Communications Inc.

Vicki Bell

Web Content Manager
FMA Communications Inc.
833 Featherstone Road
Rockford, IL 61107
Phone: 815-227-8209

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