2-2009 From the Editor
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2009 Won’t Be as Bad as Awful Fourth Quarter

By Tim Triplett, Editor-in-Chief
 
Let’s try to put the current crisis in perspective. The U.S. economy and the metals market are facing some serious challenges, but the disastrous fourth quarter does not necessarily signal a similarly disastrous 2009.

The numbers are certainly worrisome. Earlier this month, alarming news about the nation’s labor market added fuel to everyone’s fears. Nonfarm payroll fell by 598,000 in January, raising the unemployment rate to 7.6 percent. Since the start of the recession in December 2007, job losses have totaled 3.6 million, about half of that decrease occurring in just the last three months.

Economic activity in the manufacturing sector declined for the 12th consecutive month in January, while the overall economy contracted further. The rate of decline slowed a bit, however, according to the latest ISM Report On Business. January’s PMI of 35.6 percent was up from December’s 32.9 percent, though both remained well below the 50 percent that indicates growth.

In the metals sector, MSCI reports that shipments of steel products from U.S. and Canadian service centers fell by nearly 30 percent in November and December, while inventories continued their steady decline. For full-year 2008, service center shipments were down 10 to 11 percent in the U.S. and Canada.

So, how severe will this global recession be, and how long will it last? With credit remaining tight globally, manufacturing activity will soften well into 2009 as companies curtail production and employment while they liquidate inventories and match output to the reduced demand, says analyst Eli Lustgarten of Longbow Research.

Government agencies in the U.S. and around the world are working to bail out the banking system and to stimulate the economy with infrastructure and jobs programs. “The injection of liquidity and the coordinated global move to cut interest rates are all focused to free the financial sector from the current spasm that has threatened to halt global economic growth,” Lustgarten says. “We’re throwing money at the problem, but the next two to four quarters will be very dicey for Industrial America. Domestic economic growth will be negative at least through the first half, if not all, of 2009.”

Key to the economy’s recovery is the timing of the financial market’s stabilization, he adds. “If we can unfreeze the credit market and allow normal borrowing to function, then markets will have the ability to show some improvement in the second half of 2009.”

Most experts predict little or no growth for the U.S. economy in 2009, followed by perhaps 2 percent growth in 2010. “Industrial America’s golden age of above-normal earnings may have come to an end,” Lustgarten concludes.

The gloomy economic news makes the ad on page 13 of this month’s MCN that much more noteworthy. Don Simon at Contractors Steel isn’t hunkering down, simply waiting to be victimized by economic forces beyond his control. He’s looking to expand, to acquire another location in the Midwest. He’s taking advantage of the downturn to upgrade, and I’m sure he’s not the only one.

Competitors like Simon see opportunity where others see only despair. They give me hope for the future.

Questions or comments about Metal Center News. E-mail feedback@metalcenternews.com
  
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