Are we there yet?

April 2, 2009
By: Eric Lundin

No, you're not a family vacation; no, you're not driving a station wagon on a cross-country trip; no, you're not being bombarded with that question from a back seat full of impatient youngsters. Yes, you're asking yourself that question, and you'd probably like to ask every fortune teller, soothsayer, clairvoyant, or economist you can find.

The destination in this case is the trough of the business cycle. The bottom of the recession. The bleakest, most dire point.

It's always hard to tell what the economy is doing right now. Various agencies, both public and private, monitor various economic factors continuously; by the time the data is gathered, sifted, worked over by statisticians, correlated, and assembled into some sort of a report, the information is weeks or months old. That said, the economy likely has hit bottom, or is nearly there. Dr. Chris Kuehl, who delivered the keynote address at Metal Matters (FMA's 4th annual leadership summit, held March 25-27), cited several factors that indicate the economy is on the mend.
First and foremost, he cited the London Interbank Offered Rate (LIBOR), a rate at which banks lend to each other and therefore a benchmark for lending activity. It is often less than 1 percent, he said. As of early April, the one-month LIBOR rate was 0.50 percent. This is down from 2.70 percent a year ago.

Housing is another area to watch.

"This sector started it; this section will likely end it," he said. A key driver is the number of births, which hit 4.32 million in 2007. This is actually higher than the previous peak at the height of the baby boom, which was 4.31 million in 1957. For many couples, a new baby leads to a mortgage, usually within 36 months, Kuehl said. And, of course, a mortgage leads to a host of large purchases, such as appliances and furniture.

Consumer spending in generalnot just mortgages and big-ticket itemsalso is a solid indicator. According to Kuehl, a consumer statement heard more and more frequently these days starts like this: "Well, I know I can't afford it, but&"

OK, how about some hard data? The PMI has been moving upward for three straight months. In his firm's daily newsletter, Kuehl mentioned that the PMI's new orders index jumped 8 percent in the last month. Data from the U.S. Census Bureau seems to back this up. The April issue of its M3 report states that new orders for manufactured goods increased in February.

Need one more? I have been watching bankruptcy data. I found a source that provides this information at no charge. It's not reported oftenjust quarterlyand the number of business bankruptcies is still climbing, but it's worth watching.

Does this mean we're there yet? Well, not necessarily. When a handful of indicators have been moving in the same direction for several months, we'll have a better handle on it.

For more information from Kuehl on the fabricating industry, subscribe to Fabrinomics".
Eric Lundin

Eric Lundin

FMA Communications Inc.
2135 Point Blvd
Elgin, IL 60123
Phone: 815-227-8262