Could this be it?

August 16, 2013
By: Dan Davis

Welcome to the wonderful world of stability. At least that’s how many metal fabricators see their business.

In the inaugural Forming & Fabricating Job Shop Consumption Report from the Fabricators & Manufacturers Association, 43 percent of fab shops surveyed indicated that the business outlook is positive and 42 percent said stable. Only 15 percent declared it negative.

It seems like it’s been this way for a while. The metal fabricating markets have been improving, but the economy isn’t firing on all cylinders as of yet. Uncertainty associated with government regulation, natural disasters, and terrorism has been somewhat to blame, but this general feeling of unease has gradually become the new norm.

What if this is the best we can expect in the near term?

Some pundits have floated the idea that we may have already entered a period of stagflation, when tepid economic growth and high unemployment numbers coincide with inflationary pricing on goods. Not all agree, however, because they think that overall inflation has been held in check. Even though food and gas prices typically aren’t considered as indicators when determining inflationary trends, the average American consumer has seen some pretty dramatic price hikes in those area in recent months.

At the very least, the U.S. economy has hit a period of stagnation—even as the automotive and energy industries thrive. The latter may have more of a chance to make a long-term positive impact on the U.S. economy; the automotive industry is simply riding a wave of replacement purchases because the average age of a U.S. vehicle has now reached an amazing 11 years old.

Ask economists and they will tell you that a true economic revival in this country is dependent on consumer spending. Well, the economic boom of the 2000s—and some might argue even before—was built on borrowed wealth: As home prices rose to astronomic levels, homeowners borrowed against them, giving them funds to luxuriate. Some estimates have the U.S. residential market losing about $4 trillion in value after the real estate bubble popped.

Simultaneously, job and wage growth has been tepid in the U.S. With the new focus on trying to trim government, public employees are or will see the squeeze on their own paychecks. That is not taking into account the thousands of retired public employees that likely will see some sort of change in their retirement benefits as municipalities come to grips with the burden of trying to cover pension obligations that they ignored for years.

Meanwhile, families have to cope with rising education costs and plan more aggressively for any chance at a comfortable retirement. They’ll have to carry more of the burden for health care in the future as well.

Betting on the U.S. consumer to pull the economy back to GDP growth levels higher than the 3 percent needed to generate consistent job growth is like betting on a horse that has run two races prior to running the main event on the same day. The horse and the consumer are tapped out.

Until housing prices rise or the emerging economies of the world catch fire again, this may be the best that it is going to get. Of course, that all changes with the emergence of some major problem like this.
Dan Davis

Dan Davis

FMA Communications Inc.
2135 Point Blvd
Elgin, IL 60123
Phone: 815-227-8281