Economic Outlook 2011

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2011 will mark the first time MetalMiner has formally published an economic outlook for the year (though admittedly we will rely on other experts to do so)!

No matter what metal market outlook readers may follow, understanding where demand will come from based upon the global economy will play a large role in determining the direction of metals prices, be they steel, aluminum, copper or even precious metals. To come to some sort of analysis, we turn to a couple of different organizations with nearly opposite forecasts. But first we have to discuss our own track record regarding reading the economic tea leaves. We (and specifically, I) have leaned toward a more bearish forecast in the past than my colleague Stuart. The divergent views come down to consumer buying behavior that traditionally has driven the US economy.

We consider this ironic, since the economists viewed as most accurate by Vistage International, a professional CEO organization to which we belong, called both the recession as well as the recovery. And to add insult to injury, I wrote two pieces on their forecasts. You can read their call for a recession here and their more optimistic forecast for 2010 here. Needless to say, I jumped at the opportunity to hear their 2011 forecast delivered via webinar on December 17.

We’ve included some of their key points below:

  • Exporters look more positive based on growth rates in OECD and emerging economies
  • When interest rates start to change, we’ll see some big supply/demand shifts and price increases
  • We will continue to see more commodity fund investments
  • Prices will increase between 2012 and 2014, creating a squeeze on margins
  • We are in the early stages of a cyclical employment recovery; however, unemployment won’t drop below 5 percent unemployment anytime soon (one of the more interesting points made by Alan and Brian Beaulieu of the Institute For Trend Research involved the time needed to get back to 5 percent unemployment the pair estimated it would take 10 years of adding 230,000 jobs/month)!
  • The brothers still call for the dollar to remain the world’s reserve currency, at least for the next ten years

Current economic indicators tell an interesting story, particularly for steel and copper markets within the US:

  • Non-residential construction though the numbers are still down, the rates of change appear better
  • Housing will flip into what ITR calls Phase B (growth) real fast (they characterize the economic cycles as going from A-D, with C at the peak of the growth cycle and D moving down into recessionary territory). Then housing will slide back down, but head back up into positive growth in 2012
  • Where will commercial construction go? According to ITR, if industrial production moves into recession in 2013 2014, commercial construction may weaken early and sag, but not drop off¦similar to the housing market (not a double dip decline but a sag). Unfortunately, ITR says, “this could be an extended scenario.

So what specifically does ITR say about the economy? They call for 2011 to go through a “business wholesale high through 2012-2013. Then the economy will begin to slow down. By 2014, the overall economy as defined by GDP and industrial production, in particular, will move into the red zone. Their forecast calls for the first negative numbers to appear in late 2013 or early 2014.

–Lisa Reisman

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