5-2--9 From the Editor
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'Extremely Ugly' Economy Poised for Slow Makeover

By Tim Triplett, Editor-in-Chief

Now that the first quarter is in the record books—ones filled with red ink—how much more do we know about prospects for the rest of 2009?

At this point last year, public companies continued to report glowing sales and earnings results despite an economy that was clearly turning south. Sky high metals prices, resulting from unusually low imports, were masking the economy’s steady decline. One year later, with the mask removed, the true ugliness of the market is apparent. With prices and demand half what they were a year ago, both mills and service centers are struggling.

“No one is immune to the effects of steel prices falling by 65 percent from the fourth quarter of 2008 and service center shipments dropping by 42 percent,” said Olympic Steel Chairman and CEO Michael Siegal, whose company reported a $25.5 million loss for the first quarter.

Industry leader Reliance Steel & Aluminum Co. reported an 18 percent drop in sales and an 81 percent drop in net income for the quarter, though it was one of the few to stay profitable. “Business remains difficult across all of our products, evidenced by weak demand and soft prices,” said David Hannah, Reliance chairman and CEO. “There is no geographic region that is significantly better or worse than any other.”

On the mill side, perennially profitable Nucor Corp. suffered its first losing quarter in the company’s 43-year history, posting a $189.6 million loss. Echoing the sentiments of most producers, Dan DiMicco, chairman, president and CEO of Nucor, told investors that the economic climate remains bleak. “In fact, conditions have continued to worsen with each successive month so far in 2009. I wish I was able to provide a more encouraging report, but as always our team will tell it exactly as it is. It’s extremely ugly out there.”

Some good-looking trends are beginning to emerge, however. Earlier this month, Federal Reserve Chairman Ben Bernanke pointed to signs the economy is stabilizing and could begin a slow recovery by the end of this year. In fact, there is a growing consensus among leading forecasters that the worst may be behind us.

The recession could end by September, according to an early April survey of 53 leading economists by The Wall Street Journal. On average, they predicted GDP will contract by 1.8 percent in the second quarter, an improvement from the 5 percent drop in the first quarter, and will actually turn slightly positive by the third quarter. Unfortunately, high unemployment, which could peak at 9.5 percent later this year, will continue to drag down economic recovery until the second half of 2010, most agreed.

The Institute for Supply Management’s monthly survey of purchasing executives shows that while economic activity in the manufacturing sector failed to grow in April for the 15th consecutive month, the decline in manufacturing continues to moderate. After six consecutive months in the mid-30s, April’s PMI of 40.1 percent shows significant improvement. Indeed, at 47.2 percent, ISM’s New Orders Index is within flirting distance of the 50 percent reading that indicates growth.

Our ugly economy clearly needs an extreme makeover—and the process may have begun—but unlike the kind on TV, it won’t happen overnight.




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Friday, November 28, 2014