The recession's end: Waiting for land

Ignacio Nacho Palomarez is what you"d call an early technology adopter. The president of San Carlos, Calif.-based Spacesonic dove into laser cutting in the 1980s, and today he has laser cutting capability that includes armored plate, thin sheet, and everything in between. These days he"s attending a fair number of auctions, including one for a shuttered metal spinning shop he attended on Saturday. Here"s what he had to say about it this morning.

Everything sold for next to nothing. I bought a 50-kVA spot welder for about $400. I need some pallet racking for a project I have right now, and I got 120-foot pallet rack sections for $40. About ten 24-inch height gauges were bid on; the winning bid was $30 a height gauge. The man took only three of them, and the auctioneer tried to pawn off the other seven at $30. Nobody took them. So he fired up the auction for the remaining seven. The winning bid was $10. That"s the reality of what"s going on right now.

Palomarez is operating his business like a lot of successful metal fabrication executives are across the country. The company hasn"t laid anybody off, although things are slow enough to give employees certain Fridays off. But with a shop floor full of flexible, modern equipment placed in cellular, lean-manufacturing fashion, Spacesonic boasts some significant efficiency that Palomarez hopes will take him through this downturn.

Justin Lahart speculated in today"s Wall Street Journal that once the economy hits bottom, it may quickly go into high gear as consumers become more secure and start spending again. He compares it with the 1980 downturn, when the Fed introduced controls on credit to fight inflation; later that year, the Fed eased its controls and the economy bounced back, ending what was the shortest recession on record, Lahart said. With the credit crunch over, consumers and companies raced to buy what they had held off on.

What"s the difference between then and today? To explain, Lahart quoted AllianceBernstein economist Joseph Carson. [The 1980 recession] was government-induced; this one is market-induced.

The Journal added a caveat, though: This time there"s a banking crisis, and historically after such crises economies have shrunk by 9 percent over two years, and it"s taken four years for employment to creep back to prerecession levels. Lahart quoted economist Carmen Reinhart of the University of Maryland: You"re still deep in the hole and there"s this reprieve that makes it look as if things are getting better, and they roll over again and die.

It"s been said that economists are great at predicting past events, and this probably applies today. It"s hard to find a historical comparison for today"s mammoth troubles in finance, so it"s probably difficult to know how this recession will play out. One thing"s for sure: The recession will end, business will bounce back, and once it does the best companies out there will have a plan for action.

Palomarez told me he now is operating his business as if he"s Charles Lindbergh flying over the North Atlantickeeping steady, moving forward, but very carefully, making sure he doesn"t go off course. And he doesn"t expect to see land until 2010. Once he does, he has a plan for action that includes, among other things, a product line.

Until then he"s controlling the rudder, making sure he"s efficient as possible, and waiting for land.