Experts at last month’s MSCI economic summit offered a fairly optimistic outlook for 2006, though the economy is slowing and no one can truly predict the full effect of the hurricane disasters.

Economist Paul Kasriel of the Northern Trust Co. sees some turbulence ahead for industrial metals, despite hurricane rebuilding. “President Bush has essentially written a blank check for the rebuilding of the Gulf Coast,” he said. Nevertheless, various economic indicators confirm that the global economic environment is in the process of slowing.

Indeed, the metals market already has shown signs of a slowdown. U.S. crude steel production was down 5.8 percent through August (though the cutback in steel production may partly reflect mill efforts to restrain supplies and sustain prices, rather than simply a response to declining demand.) Steel shipments by service centers were down 3.5 percent for the first eight months of 2005.

The U.S. economy, which grew at a 4.6 percent pace in the first half of 2004, slowed to around 3.6 percent in 2005, Kasriel said, and may well slow further due to unpredictable effects of the Gulf Coast storms. “For some time—we don’t know how long—the American economy will not be able to grow as rapidly. Without energy, we simply can’t produce as many goods and services. Katrina took out a lot of our energy production and distribution abilities, as well as transportation capacity, which will restrict the economy’s ability to grow.”

Housing and consumer spending will bear the brunt of the economic slowdown, he continued. If rising mortgage rates weaken demand for housing and new-home construction, moderating property values could drag down consumer discretionary spending, which has been a main driver of economic growth.

“In recent years, a lot of people have been treating their houses as their own personal ATM machines,” Kasriel noted. “As quickly as the value of the house goes up, people refinance, take out a bigger mortgage and use the equity to buy a big screen TV.” If real estate values begin to level off, homeowners will be less inclined to borrow their equity. “So households will have to increase their net worth in a different way—by spending less than they earn.”

Meanwhile, the Fed remains concerned about inflation and is likely to raise short-term rates to at least 4 percent, he predicted, forecasting an “optimistic” 3 percent growth for the U.S. economy next year.

Ending his remarks on a cautionary note, Kasriel warned that if the Fed pushes rates too far too fast, the economy could slip into a recession fueled by the excesses in the housing market and high consumer debt levels. Over 60 percent of bank loans are housing related, he pointed out. “If something goes wrong with the housing sector, something will go wrong with the banking sector.”

On another note, Metal Center News is reluctantly saying good-bye to long-time Managing Editor Corinna Petry, who resigned earlier this month to accept a position with Michelle Applebaum Research Inc. Though Corinna is leaving MCN, she will remain an active member of the steel community, taking her considerable knowledge and talent to one of the industry’s top consulting firms. Her editor, and all her friends here, wish her well (almost as much as we wish she’d stay).