July 6, 2016

Platts: Economic Headwinds Easing

It’s no secret the U.S. has experienced much slower growth coming out of the 2008-09 recession than in past post-downturn expansions. But looking forward, a number of factors are working in favor of the U.S. economy, said Satyam Panday, an economist for Platts, which conducted a one-day steel forum in New York the day before the Steel Success Strategies conference.

Over the past six years, U.S. GDP has grown at an average of 2.1 percent, well behind the expansions of more than 3.5 percent from 1984-90 and 1991-2000, and even trailing the 2.7 percent growth rate from 2001-07. “Even though this is a lower growth rate, we have to compare it against the potential of the economy,” Panday said.

Two key headwinds working against economic growth in the past half-decade have been the state of the global economy and demographics at home. Growth in the rest of the world has slowed to under 3 percent growth since 2012, a full percentage point below the norm. At home, the labor force has endured a decline as the baby boomer generation exits the workforce and the large millennial cohort begins to come on board.

As always in the U.S., future growth will start with consumer spending, which drives 70 percent of domestic GDP. “When consumers are doing well, domestic demand is good,” he said. Household balance sheets, a weakness that contributed mightily to the latest recession, have strengthened considerably. The debt-to-income rate, which once was about $1.25 of debt for each $1 earned, has dipped to 90 cents per dollar. That’s significant progress, particularly compared to the Eurozone, he added.

The stock market also has rebounded, as have home prices, which are particularly important to the middle class as they represent much of that group’s net worth. Additionally, the U.S. has not only recovered all of the jobs lost during the recession, but the workforce is beginning to see some real wage growth. Job growth has slowed, with only 38,000 jobs added in May, which was inevitable given the country’s demographics. “The unemployment rate is at 4.7 percent, which is right in the middle of what the Fed thinks of as normal at 4-5 percent.”

By the end of 2017, housing starts should finally return to their historical averages, Panday predicted, as a number of positive forces are at play in the housing market. Annual vehicle sales have likely plateaued, though at a healthy 17.4 million. Other industrial production is weak, hurt by low energy and commodity prices and a strong dollar.

For the steel supply chain, the greatest potential for growth is in infrastructure investment, both because of the recently passed federal highway bill and the enormous need for improvements to the nation’s aging roads and bridges.

On the monetary side, Panday expects another one or two interest rate hikes before the end of the year, though his forecast was made before the UK voted to exit the European Union. In either case, the Fed will “take a cautious approach, and this will be the shallowest rate hike period we’ve seen in history.”

For more from the New York steel conferences, see the July issue of Metal Center News.


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Monday, October 23, 2017