News you can use

March 8, 2013
By: Dan Davis

Last week more than 100 metal fabricators gathered for The FABRICATOR's Leadership Summit in Palm Harbor, Fla. The conference attendees seemed optimistic as most are in the midst of coping with expanding business opportunities.

But with such pressures come concerns. Everyone apparently is looking out of the corners of their eyes in hopes that they can see what challenges are coming next. Uncertainly still abounds.

Fortunately, the conference provided metal fabricators a chance to absorb some expert observations. FMA economic analyst Dr. Chris Kuehl and Donald McNeeley, president and COO, Chicago Tube & Iron Co., and professor at Northwestern University, took the stage the afternoon of Feb. 27 to talk about current business conditions. Some of the insights were noteworthy:

  • Kuehl works with the National Association of Credit Management to put together the Credit Managers' Index (CMI), which is similar in structure to the PMI, the prominent index used to gauge the health of the manufacturing industry. The CMI, however, is more forwar-looking as it's based on credit applications, the step needed before any type of uptick in manufacturing activity occurs. Kuehl reported that more credit applications have been submitted and approved the last three months than in the last two years combined. The money has been there to lend, but only now are lending institutions and borrowers connecting to put the funds to use.

  • Kuehl also tracks the transportation segment, which is an important indicator for industry because all manufactured goods need to be shipped somewhere. He said that rail and trucking activities have increased in recent months, but the real story is in air cargo, which is picking up as well. "When you see air cargo up, that's a very good sign," he said. Air cargo often represents the last—and a very expensive—option for delivering goods.

  • McNeeley said the loose monetary policies supported by the U.S. Federal Reserve have created a dangerous situation because the risk of rampant inflation is as strong as it has ever been. "I think inflation is going to be a real problem by the end of the year," he added.

  • McNeeley suggested to the metal fabricators to purchase all of the equipment they need for the foreseeable future right now to take advantage of low interest rates. Double-digit inflation is a real possibility seven to 10 years down the road.

  • McNeeley said potential legislation looking to raise the minimum wage rate in the U.S. is foolish. "Never in the history of economics has a raise in the minimum wage led to a decrease in the unemployment rate," he said.

  • Kuehl reminded the crowd that the nationwide unemployment rate doesn't give the whole picture when it comes to the jobless. For instance, he said research suggests that 80 percent of people getting unemployment checks actually are getting paid cash for other jobs. A large underground economy has evolved over the past several years in the face of high unemployment numbers.

  • Most fabricators will have a better second half of the year, according to McNeeley. "I think 60 percent of what you do this year will occur in the second half of this year," he said.

If you can keep focused on the short term, you can expect good things ahead. The long term doesn't seem so promising, however. I guess let's just enjoy today and worry about tomorrow later … just like Congress.
Dan Davis

Dan Davis

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