Industrial Economic Signals: Down But Not Out

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Macroeconomics, Supply & Demand

It’s easy to jump on the bandwagon of doom and gloom for the US economy. A falling dollar, a sub-prime mortgage mess, sluggish holiday retail sales and a whopping $9 trillion of national debt make it hard to conclude anything other than a recession for 2008. Since Q3, 2006 leading CEO organization Vistage has been predicting a Q2 2008 recession.

But the data is not yet supporting that position. Crain’s Chicago in late December reported on the National Association of Purchasing Manager’s latest business activity index for the Midwest which was at a healthy 56.6. Anything over 50 indicates growth. A reading under 50 indicates contraction. This survey is an interesting benchmark because it largely examines factory activity. The article goes on to say that these numbers are much better than economists forecasted. Perhaps the most interesting note however relates to pricing specifically, “prices paid fell to 63.8 from 76.2 a month earlier”.

What ramifications does this have for metals prices? It’s unclear. We’ll be coming out with our 2008 metals pricing predictions shortly. But many of those predictions are based on economic fundamentals. And though some of the large industrial bell-weather companies (e.g. Caterpillar) are having down years, it’s too early to call the sector out.

–Lisa Reisman

Comments (6)

  1. Jason Busch says:

    I still think US manufacturers will be screwed when it comes to material costs in 2008 (especially global sourcing costs). The Fed is in a fascinating position at the moment in that it must cut rates to get out out of what I believe will be a recession if they maintain the status quo, but at the same time, we find ourselves in the grip of significant inflation in the consumer sector (food, energy, oil, etc.), suggesting higher rates will be essential to fight inflation — which would only cause the economy to spiral downward faster. Bad news, in my view, as was this more recent ISM date from two days ago:

    http://www.spendmatters.com/index.cfm/2008/1/3/Interpreting-ISMs-Manufacturing-Sector-Downturn

  2. admin says:

    I think it is clear that the economic signals are certainly throwing up some red flags. It is true to say that costs are spiralling for some major commodity areas but we feel the slack in US demand will open up metal supplier capacity. I think in particular, more finished product goods (machinings, castings, forgings etc) will face downward price pressure. We’ll see how it shakes out. LAR

  3. Jason Busch says:

    Imelda,

    Just a note from your husband (not your fellow blogger)… if it helps the economy anymore, you’re welcome to keep spending on your shoe collection in 2008.

  4. admin says:

    Jason,
    I don’t think you have any idea what you signed yourself up for. If there were a shoe hedge, you ought to buy one now. The price of this Choo’s and Manolo Blahnik’s are about to skyrocket given the dollar/Euro exchange rate. All you ladies out there, better pick up your 2007 fall season shoes now while you can! Imelda.

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