An economic analyst for the Fabricators & Manufacturers Association International says any recovery in the sector will be slow.
A leading economist predicts that
when 2010 ends, most will look at the year as one in which progress was made,
but “it will not be champagne cork popping time -- more like 'wine-box
opening time.' ”
“Throughout the past year or so,
there has been a steady assertion from most analysts that 2010 will be a time
of economic recovery, but it will be a slow rebound,” said Chris Kuehl, Ph.D., economic
analyst for the Fabricators & Manufacturers Association, International.
“Many regions of the country will not see much progress until late in the
year and some industries will do better than others.”
In the current FMA economic update
newsletter “Fabrinomics,” Kuehl outlines four pieces of good news
and three notes of caution. Positive trends include:
Growth in both service sector
and manufacturing. Kuehl cites an upward trend from the Credit Managers’
Index (CMI) prepared by the National Association of Credit Managers and Purchasing
Managers’ Index (PMI) from the Institute of Supply Management. “The PMI and CMI
measure both manufacturing and service sectors and both of these key sectors
are growing,” he said.
Employment numbers have started
According to Kuehl, job losses
peaked in the early part of 2009 and the rate of unemployment shrank a bit in
the latter part of the year - falling from 10.2 percent to 10 percent. “Layoffs
have declined and within a couple of months there should be enough new hires to
offset any new layoffs,” he says.
Access to credit from banking
Access to credit remains the
lifeblood of the economy. “The really important news for the manufacturing
industry is that community banks and regional banks have become a bit more
aggressive,” saidKuehl. “This will not help big business very much, but these
are the banks that loan to and service mid-sized and smaller businesses.”
Next economic threat still seems
pretty distant. According to Kuehl, two main fears - massive inflation and
a second recession - will likely be avoided.
“Because banks have been hurting,
they have not pushed much money into the economy, limiting inflation,” he
says. “Once the economy begins to grow on its own, the Fed can raise
interest rates to fight inflation without triggering another recession.”
Kuehl balances the optimism with three points of caution:
Recovery depends on right
sequence of events. “If the inflation threat manifests itself sooner than
expected, the Fed will need to yank in the reins sooner than it wants to
and the economy will start to stutter,” said Kuehl. “The wild card in all this
is that the U.S.
is in the grips of an election year and there will be many politically charged
decisions that will affect business.”
Demand growth brings potential
for more expensive inputs. According to Kuehl, manufacturers had but one little
bright spot in the past year - lower fuel prices than expected - but the price
is likely to head up.
“If the summer driving season is
close to respectable, gas prices could climb an additional $1 to $1.50 per
gallon over current prices,” he said. “There will be other commodity hikes as
well that may have an impact on inflation concerns - everything from metals to
Conservative shift of the
financial system. “There are many provisions in Congress that will
require more reserves, limit loans, and demand far more clarification when
loaning,” said Kuehl. “Banks will be reluctant to engage until these issues are
settled and that slows business dramatically.”
asserts that most manufacturers will view 2010 as transitioning out
of a recession as opposed to sliding into one.
“But the challenges are even
greater at this point,” he said. “Businesses are weak and need the recovery to
come soon. To the manufacturer this will be a time of opportunity as some of
the traditional industries will get healthier again. The sectors that were
doing relatively well in 2009 should keep growing in 2010 - energy, health
care, and some high tech.
“The construction sector will be in
the doldrums for most of the year and that is a problem,” he added. “The
economy needs to see an end to this crisis and so does the manufacturing sector
as it undergirds everything from building materials to the production of