Commented one service center executive recently: “We had our best year ever in 2004, and 2005 will be our second best, but things have definitely slowed down.” Like him, some executives are slightly uneasy about prospects for the second half.
Not to worry, say the experts.

U.S. consumer sentiment improved in June. The University of Michigan’s measure of consumer confidence rose to 96.0 from 86.9 in May. Consumer spending accounts for two-thirds of overall U.S. economic activity, so any improvement in confidence points to stronger growth.

The Institute for Supply Management’s manufacturing index rose to 53.8 in June, up from 51.4 in May—the first time in 12 months that the index has increased—indicating that the spring slowdown was temporary and the economy is gaining speed. (This is the 25th consecutive month the index has stayed above 50, which indicates growth.)

As expected, the Fed raised the federal funds rate by a quarter point to 3.25 percent, commenting that “the expansion remains firm” with robust underlying growth in productivity and gradual improvement in labor market conditions despite higher energy prices.

While the economy at large appears strong, the signals are not all so positive in the metals market. Service center shipments of steel products declined by 3.7 percent in the first five months of 2005. Steel inventories at service centers remain a bit high with 3.4 months’ supply on hand, up 18.6 percent compared with this time last year. Likewise, total service center shipments of copper and brass were running 7.5 percent behind 2004’s pace. It’s important to remember, however, that these are modest declines from perhaps the strongest year in the metal market’s history.

As of May, steel imports were 15 percent ahead of last year. That suggests that our economy, and demand from the manufacturing sector, is healthier than in other parts of the world, though imports are increasing competition and pressure on prices.

U.S. spot prices for steel sheet declined in May for the eighth month in a row, according to Purchasing Magazine—a 29.2 percent drop for hot-band and a 22.6 percent drop for cold-roll since last October. In the United States last month, the hot-roll price was roughly $450 to $460 per net ton, according to World Steel Dynamics, down from well over $700 last year. Part of that change is a function of sharply declining scrap prices. Prime automotive scrap fell from $470 per ton last November to a recent low of $155, recovering to about $180 of late. Similarly, WSD predicts that steel prices will bottom out in the next few months and then recover strongly in the following two quarters.

he stage is set for such a turnaround, according to other economic experts. “If growth peters out now, it will be the shortest capital goods recovery in history,” says Robert McCarthy of Robert W. Baird & Co. The unusual length and depth of the last manufacturing recession, which created significant pent-up demand, is still contributing to the rebound, adds Jim Meil of Eaton Corp. Ken Mayland of ClearView Economics describes current economic conditions as a “stealth boom.”

“We are just in the middle innings of the economic expansion,” he says, “and the middle innings tend to last a long time.”