An analyst for the Fabricators and Manufacturers Association says the U.S. economy will not enter a double-dip recession.
manufacturing industry economist says although the gloom and doom brigade has
been out in force in recent weeks, and the markets reflect a new sense of
impending doom, the slowdown is only temporary and not the start of another
breakdown in the economy.
some of this reaction is justifiable when one looks at the numbers released
lately,” said Chris Kuehl,
Ph.D., economic analyst for the Fabricators and Manufacturers Association. “The housing market is still skidding, the consumer has
retreated in the face of more inflation threats and the jobless rate has
worsened. The manufacturing sector in particular seemed to lose its position as
the engine of the recovery.”
in the current economic
update newsletter “Fabrinomics,” published by FMA, Kuehl asserts this downturn is just a blip and cites
three reasons why it won’t last.
the most important factor is the unexpected surge in inflation that occurred at
the start of the year, “Kuehl said. “This is not yet an increase in the
all-important core rate that motivates the Fed to make decisions, but when the
real rate of inflation spikes there is an almost instant consumer reaction,
when the inflation comes from hikes in commodity prices.
emergence of the ‘Arab spring’ took the world by surprise,” he added. “Within
days the price per barrel of oil had thrust ahead by almost $20, and the price
of gas jumped by 70 cents. The consumer was fresh off the memory of 2008 and
assumed that it was only going to get worse, and the talking heads reinforced
that perception. The result was a rapid withdrawal of consumer confidence which
took a big chunk out of overall demand.”
to Kuehl, the price of oil may be heading down soon, and gas prices have
already eased a little. More important, the inflation threat is not yet
manifesting in a way that will shift consumer behavior permanently.
three factors that beget inflation are hikes in commodity prices, shifts in the
wage structure, and an overall abundance of money in the system,” he explains.
“At the moment only commodity prices have become a factor. In other words, the
inflation pressure felt by the consumer is coming from fuel and food, and there
may be some modest relief on the way for both of these sectors. If the consumer
thinks that the threat of much higher pricing is not so immediate, they will
likely relax and get back to their old patterns.”
second reason the downturn might be short-lived is that much of the decline of
the last few weeks has been related to the issues stemming from the Japanese
earthquake, Kuehl maintained.
flow of parts and supplies for the world was interrupted and many manufacturers
felt the pinch,” he said. “The Japanese are already starting to recover, most
of those parts will be flowing soon, and by the end of the year there will be a
return to some semblance of normal.”
third reason for only a temporary slowdown: Some of the conditions that led to
the expansion of the recession are fading, and these improvements will start to
show up in the months ahead, Kuehl said.
are a little baffled that banks and corporations have more money on hand than
they have had in years, but that cash is not going anywhere,” he added. “The
banks are sitting on it in part to contend with the wave of rule changes that
stemmed from the Dodd Frank legislation, and partly because they have returned
to their old-school ways. Slowly but surely, the new system is getting in
place, and banks are interested again in expanding their business through
is still far from loose, but it isn't as tight as it has been,” he said. “The
business community is holding on to cash more aggressively as well, uncertain
about what they can count on from the banks and partly because they are just
more cautious. The need to spend that money is not pressing as yet, but if the
competition starts to move or there appears to be more demand, they will start
to less loose that cash, and the economy will be stimulated again.”
what about the industrial sector, which has been pulling the economy along on
the strength of expanded exports and the need to rebuild inventory?
is likely the export demand will return, although in fact it has not declined
all that much in the past few months,” Kuehl said. “The big drop has been in
inventory build, and until the consumer gets more aggressive there will not be
a draw-down sufficient to provide much impetus for the manufacturer.
“As in most other recoveries, the consumer will hold the key.”
Economist: Slowdown is temporary
August 3, 2011