Economists Offer Pep Talk on Surviving the Recession
By Dan Markham, Senior Editor
That the North American steel industry is in the middle of a serious downturn is news to no one. The real news flash is that the steel industry should emerge from this one intact as it has so many times in the past, according to two economists who addressed a group of toll processors recently.
Titling their presentation “Now What Do We Do?” economists Glenn Kidd and Chris Kuehl offered some answers to that question and brought some perspective to the current economic crisis in their March presentation at FMA’s Toll Processing 2009 Conference in Orlando, Fla.
“The message we are emphasizing is that this is normal. It’s not a catastrophe. It’s a normal recessionary cycle,” said Kidd, a retired executive from U.S. Steel.
“It’s not an attempt to downplay the recession. Mostly it’s a plea to say that we’ve been through this before and we’ll get through this again,” added Kuehl, who serves as chief economist for FMA.
The current recession was prompted by three major shocks, Kidd said: the housing crash and its impact on the financial markets, the oil market crash, and the political cycle. Other than that, this recession is not particularly historic or out of line with previous downturns, he asserted.
Kuehl said he believes the country has reached the bottom of the recession. How long the economy will bounce along the bottom remains uncertain. “Economists love V-shaped recessions that go down sharply and up sharply, but I think we’ve missed our chance at that,” he added.
Comparisons to the Great Depression, with its nearly decade-long malaise, 40 percent delinquent mortgage rate and 25 percent unemployment, are particularly off the mark, the two emphasized. “It’s very hard to say we’re anywhere near a depression,” Kuehl said. “That’s from people who have no idea of history.”
Actually, this recession carries with it some positives. The long run-up in the economy preceding the recession was built on a questionable foundation. The U.S. needed to move away from its risky investments and over dependence on a consumer-driven mentality, Kidd said.
“Recessions are kind of like a purgative. They tend to get rid of the things you don’t want anymore,” Kuehl added.
He pointed to companies in various industries that would be best removed from the marketplace, companies that survive primarily by slashing prices rather than adding value. “They’re the ones who destroy the market, and they’re the ones who go out first,’ he said.
After years of outsourcing much of its manufacturing, the United States is suffering less of a negative impact from the recession than it otherwise might. “We’ve exported a lot of our unemployment to those [foreign] centers of manufacturing. Even though our unemployment has gone up, the unemployment in those places where we have exported our labor-intensive work has gone up astronomically,” Kuehl noted.
The pair had several suggestions for toll processors and other metals executives to help get them through the current downturn:
n Be wary of journalists. The new journalism model, Kidd said, puts profitability and market share over finding and telling the truth.
n Understand that economics equals psychology. Economies rise on optimism and fall on fear and panic. At the moment, the average American is being couched in the negative. Investors and non-investors alike look at the stock market as an economic indicator, and consumer confidence falls with each report of a drop in the day’s trading.
n Remain active. “Companies that stop going to trade shows and conferences are generally out of business within five years,” Kuehl said. “They begin to lose contact with their market, they lose contact with consumers, and they can never get that back. People who keep up outward sales and marketing are in a position to take up market share. The ones who don’t often scramble to recover ground that was lost in maybe only six months to a year.”
n Develop your own sources of data. “Over the years, I’ve tried to show you the repetitive key indicators,” said Kidd, who has been a fixture at the conference. “See the ups and downs and accept the fact there are cycles. Ask yourself where we’re at, what the current forecasts are, and think about history. Be your own counsel.”
n Focus on your business. Not all businesses or industries operate the same way in a recession. Focus on what’s going on in yours. “Separate other people’s reality from your own. Look at your own business and your own customers and get in touch with who you do business with,” Kuehl said.
n Know whom to follow. Kidd said while at U.S. Steel he always kept a watchful eye on his customers’ sales departments. “Study your customers’ sales prospects. Read their trade journals. Learn their strengths and their problems, and make your own assessment of their sales potential. That will tell you where your demand will be.”
n Be ready for the shift. “Most companies get in the worst shape at the tail end of a recession. During the middle of a downturn, everyone is behaving the same way. When they see the end of it, companies separate. And those companies that come out of it faster begin to gobble up market share,” Kuehl said.
n Inspire your employees. Be open and honest with them, but take care with your comments. “If you depress them, two things happen: Some of your best employees leave and another bunch gives up,” Kuehl said. “A leader says things may be bad, but we’re good, and if we work harder we can turn this around. We’ve all seen companies do that against all odds.”
Before wrapping up the presentation, Kidd reminded the audience to maintain a pragmatic but optimistic attitude in the coming months. “We don’t want to leave you depressed. We want to leave you sober, not suicidal.”
Companies that manage to keep their heads above water through the down times should be well positioned to capitalize when the market begins to recover, he added.
“Watch for the change. When it comes, you want to be in a position to take advantage. You want to be manned up, you want to be cashed up and you want to be ready with a good business strategy that will support your customers better.”
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