Results from the latest Metal Center News Outlook Survey show that most industry executives have optimistic expectations for business conditions in the year ahead.
By Tim Triplett, Editor-in-Chief
While no one would argue that the economic recovery has a long way to go, service center executives appear more optimistic about their prospects for 2012 than any year since 2007.
Each fall, MCN’s Outlook Survey polls readers to gauge their expectations for the year ahead. To quantify industry sentiment, MCN asks respondents to rank their feelings on a scale from 1 to 6. Those indicating 1, 2 or 3 fall on the pessimistic half of the scale; 4, 5 and 6 on the optimistic half. This year, 89 percent of respondents placed themselves somewhere on the optimistic half of the scale—even more than the 86 percent who indicated they were optimists in the prerecession boom year of 2007. Averaging all the results produces an Optimism Index of 4.5 on the 6-point scale, up from 4.3 last year and 4.1 the year before.
Over the past 11 years that MCN has published its Optimism Index, the outlook among service center executives has largely followed the ups and downs of the economy, starting around the time the dot-com bubble that burst in 2002, peaking during the boom period of 2004-06, then plummeting in late 2008 as the Great Recession gripped the nation. To give the figures some perspective, the current reading of 4.5 still lags the peak of 4.8 in 2005, when 90 percent of respondents ranked themselves on the upper half of the scale. However, it has rebounded substantially from its low point of 3.5 in 2009, when only about half of respondents characterized themselves as optimists. Indeed, as the chart on page XX shows, industry sentiment is now running above the 11-year average, and it’s trending up.
What’s the value of trying to quantify industry sentiment? Changes in optimism levels among industry decision-makers tend to correlate to their forecasts for growth, purchasing, compensation and capital spending, among other factors. In other words, the more optimistic they feel, the more ambitious their plans.
The typical (median) service center responding to this year’s survey was a small company with one or two locations and 35 employees. At the peak of the market, the typical respondent had two locations and a workforce of 48. Looking at the mean of responses rather than the medians indicates that the average service center today has 1.3 fewer locations and 13.7 percent fewer workers than at its prerecession peak. Like companies in other industries, metal distributors tightened their belts during the downturn and have learned to do more with less. It could take years for service center employment to return to prior levels.
Overall, service centers responding to MCN’s survey averaged total sales of $146.4 million in 2011. That compares to $144.5 million in 2010, or about a 1.3 percent increase, according to MCN data. Respondents are forecasting an average sales increase in 2012 of 7.4 percent.
Asked to forecast metals pricing in the first quarter of 2012, service center executives generally see prices trending upward as the economy and demand improve. Respondents expect a 5.8 percent increase in the price of steel, a 3.2 percent bump in the price of aluminum, and a 3.7 percent gain in the price of copper, on average.
Comments from the pessimists
Asked to rank themselves on the optimist/pessimist scale and explain why, comments from the pessimists tended to focus on the larger macroeconomic issues: