Economic Pill's Hard to Swallow

Remember that really bad case of the flu that sent you to the doctor, just in case? Like most doctors, he or she probably said, “Just go home and rest, drink plenty of fluids, you’ll be fine”—pounding headache and nausea seemingly to the contrary. The relationship between steel executives and economists is similar these days. At one conference after another, I’ve heard the experts point to the same leading indicators and draw the same conclusion: “The U.S. economy may not be great, but it could be much worse.” And I’ve heard voices in the audience around me mutter, “Does this guy know what he’s talking about?”

The steel industry is hurting. The price of steel has declined dramatically in the past two years. Steelmakers have lost millions. “Our steel industry is in recession. There’s no doubt about that,” says U.S. Steel President and CEO Mario Longhi. His company is among U.S. producers considering Section 201 trade relief. To succeed, they will have to prove they were injured by unfair imports. “When you lose 40 percent of your volume, 45 percent of your price and you’re laying off thousands of workers, how much worse does it have to get?” Longhi says. Likewise, service centers have seen the value of their inventories plummet, and shipments remain behind the pace of 2015. “We don’t listen to the economists tell their wonderful story. They are wrong. It isn’t so great out there,” says one Chicago area distributor.

Yet the experts all seem to agree that the economic fundamentals generally remain positive. The economy is growing, albeit at a disappointing rate of 1.0-1.5 percent. Unemployment is below 5 percent, though that does not reflect the millions of underemployed and discouraged workers. Consumer spending got off to a weak start this year, but it’s only a matter of time before they go shopping with all the money they are saving at the pump. The airlines also are seeing major savings in fuel costs from the low energy prices, much of which they plan to invest in new aircraft. Housing starts grew by over 10 percent last year, and gains in residential construction contributed to an 8 percent increase in appliance sales. Automotive continues to be the feel-good story of manufacturing. The auto industry produced 17.5 million vehicles last year and is on track to top it in 2016. Productivity. Interest rates. Inflation. On paper, at least, the U.S appears better off than it was before the recession.

Are the statisticians too far removed from the real world? Let’s hope they do know what they’re talking about. After all, would you rather your doctor had said you weren’t fine?

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Monday, February 27, 2017