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Is an expansion on the horizon?

"Lay 100 economists end-to-end and you won't be able to reach a conclusion." Like all good quips, this one is both clever and true. Some economists are optimists and some are pessimists; economic indicators often point in different directions; and most business data—whether it deals with real estate, banking, manufacturing, transportation, or some other sector—is weeks old, if not months old, by the time statisticians finish compiling it and working it over. Reaching a conclusion is next to impossible. That said, right now many economic indicators are pointing in the same direction. Many sectors of the economy seem to be stabilizing and a few are even improving. However, one key factor suggests a slow recovery.
U.S. economic output, when prices are adjusted for inflation, fell for four quarters in a row from 2008Q3 until 2009Q2. Data provided by the Bureau of Economic Analysis shows that the drop was biggest in 2009Q1, when it fell more than 6 percent from the previous period; it was smallest in 2009Q2, when it fell just 1 percent. Next quarter, who knows? I am betting on a bit of growth. The PMI, compiled from opinions of purchasing managers, climbed from a recent low of 32.9 in December of last year to 52.9 in August. The PMI has a couple of forward-looking components (new orders and order backlog), so it doesn't merely tell us where we are; it hints at where we are headed. The National Association of Credit Management's combined index, which also has a predictive element, hit bottom at 39.7 in December 2008; it climbed to 48.0 in July. Other signs are pointing in the right direction. According to Steel Market Intelligence©,steel prices outside China are on the rise. Data from the Energy Information Administration shows that the spot price for crude oil was less than $40 per barrel earlier this year, and these days it is hovering around $70. Prices follow demand—well, to some extent, anyway—and rising prices for industrial commodities reflect rising industrial activity. Has the tide turned regarding consumer behavior? Not yet. The most recent "Beige Book" came out yesterday, and it reported that consumer activity remained flat throughout much of the U.S. Flat? Well, I hope so. Just to put this into perspective, a year-to-year comparison reveals that consumer spending overall fell 1.8 percent from 2008Q2 to 2009Q2. That doesn't sound that bad, but consumer spending on motor vehicles and parts fell 15.3 percent during the same period. Nothing flat about that. Manufacturers of furnishings and durable household goods also were hurting; consumer expenditures in these categories fell slightly more than 10 percent. Consumer activity is a reflection of consumer confidence, and that confidence is tied closely to the unemployment rate. As measured by the Bureau of Labor Statistics, the unemployment rate has grown by 2.5 percentage points since December. A weekly measure, the number of new claims for unemployment insurance , tracked by the Dept. of Labor, peaked at 674,000 in late March. Last week 570,000 new claims were filed, which is an improvement, but it's far higher than the average number of weekly claims (356,000 since 2004). Until the unemployment rate heads south, we can expect lethargic consumer spending patterns and a wait-and-see attitude from most businesses.
About the Author
The Fabricator

Tim Heston

Senior Editor

2135 Point Blvd

Elgin, IL 60123

815-381-1314

Tim Heston, The Fabricator's senior editor, has covered the metal fabrication industry since 1998, starting his career at the American Welding Society's Welding Journal. Since then he has covered the full range of metal fabrication processes, from stamping, bending, and cutting to grinding and polishing. He joined The Fabricator's staff in October 2007.