Metal Buyers: Why You Should Evaluate Your Contracts

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My colleague Lisa belongs to Vistage International, a professional CEO organization that (surely) has a blast hosting webinars by two very accurate (and often very funny) economic forecasters who also happen to be brothers — Alan and Brian Beaulieu of the Institute For Trend Research (ITR). We published the Beaulieus’ take on their economic outlook for 2011 earlier this year, which came on the heels of their calling the recession and forecasting a slightly rosier 2010.

So how does their latest outlook for small businesses, given last week, stack up? Let’s take a look at some of their key macro points about the economy in general:

  • In terms of GDP and industrial production, both trend lines should be heading deeper into positive territory in the long term, making opportunities in 2012 easier to find and take advantage of
  • The overall economy will improve in 2012 and peak in 2013; but then, a couple road-signs to watch taxes increasing on businesses and individuals, coupled with the Fed likely raising interest rates point to another downturn in 2013
  • ITR is not seeing that the dollar will imminently collapse; it will generally weaken over the next several years, but we won’t see a “precipitous collapse (2030 to 2040, however, could be bad news)
  • Considerable demand for commodities across the board in 2012, from metals to fuel sources, will push “Round 2 of commodity price inflation; with inflation comes unemployment, which will be another key indicator to watch
  • The brothers don’t foresee hyperinflation in the wake of several rounds of quantitative easing, but recommend keeping an eye on rising labor costs

To the last point, the brothers seemed to endorse finding new ways to automate to keep labor costs down but wouldn’t that play a part in increasing unemployment? Not really, writes economist Ian Fletcher in tradereform.org:

“Automation per se doesn’t hurt overall manufacturing employment”as suggested by the fact that Japan, which leads the world in number of robots, also has a higher percentage of its workforce in manufacturing than the U.S. If you think about it, this makes sense, as if automation enables nine workers to do what ten used to do, those nine are now a better bargain”which increases the incentive to hire them.

Based on the above, however, the Beaulieus maintain that manufacturing will feel the most pain in any upcoming downturn. They mentioned a few things for businesses to keep in mind moving forward in the next couple years:

  • Make sure to evaluate your contracts, and have provisions for price increases tied to the PPI/CPI — do not go into long term contracts without them
  • Don’t buy long right now, since prices should relax a little; not everyone is able to raise prices right now, but be prepared with a “toolkit at your disposal as part of the conversation
  • Use fuel surcharges to your advantage, as they’ve become more accepted

–Taras Berezowsky

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