3 Reasons Why The Manufacturing Slowdown Might Be Temporary
As I write this in mid-June
the news is filled with economic gloom, including a slowdown in manufacturing
and what appears to be a correction course for the stock market, if not worse.
The term “double dip” has cropped up so often it sounds like stuttering. So it
was refreshing to read at least one upbeat assessment from a manufacturing
industry economist.
Dr. Chris Kuehl, economic analyst for the Fabricators & Manufacturers Association (FMA), says the slowdown is only temporary and not the start of another breakdown in the economy. He cites three reasons for optimism:
1. The unexpected surge in inflation that occurred at the start of the year won’t spur the Fed. “This is not yet an increase in the all-important core rate that motivates the Fed to make decisions,” said Kuehl. According to him, the price of oil may be heading down soon and gas prices have already eased a little. More important, the inflation threat is not yet manifesting in a way that will shift consumer behavior permanently.
2. Much of the recent decline has been related to the Japanese earthquake. “The flow of parts and supplies for the world was interrupted and many manufacturers felt the pinch,” he said. “The Japanese are already starting to recovery, most of the parts will be flowing soon, and by the end of the years there will be a return to some semblance of normal.”
3. Some of the conditions that led to the recession are fading. “Observers are a little baffled that banks and corporations have more money on hand than they have had in years, but that cash is not going anywhere,” Kuehl says. “The banks are sitting on it in part to contend with the wave of rule changes that stemmed from the Dodd-Frank legislation, and partly because they have returned to their old-school ways. Slowly but surely, the new system is getting in place, and banks are interested again in expanding their business through loans. Credit is still far from loose, but it isn’t as tight as it has been.
“The business community is holding on to cash more aggressively as well, uncertain about what they can count on from the banks and partly because they are just more cautious. The need to spend that money is not pressing as yet, but if the competition starts to move or there appears to be more demand, they will start to less loose that cash, and the economy will be stimulated again,” Kuehl reasoned.
And what about the industrial sector, which has been pulling the economy along on the strength of expanded exports and the need to rebuild inventory?
“It is likely the export demand will return, although in fact it has not declined all that much in the past few months,” Kuehl says. “The big drop has been in inventory build, and until the consumer gets more aggressive there will not be a drawdown sufficient to provide much impetus for the manufacturer.”
Maybe he’s just whistling in the dark, but it sounds like music to these ears. You can read more of Dr. Kuehl’s analysis at www.fmannet.org.
Andrew Lane, MRC’s chairman, president and chief executive officer commented, “This acquisition furthers our vision to be the world’s premier PVF distribution company to the energy and industrial markets. SPF’s PFF capabilities would allow MRC to expand on our valve platform to have a complete global PVF supply capability.”
- Jim Olsztynski
Dr. Chris Kuehl, economic analyst for the Fabricators & Manufacturers Association (FMA), says the slowdown is only temporary and not the start of another breakdown in the economy. He cites three reasons for optimism:
1. The unexpected surge in inflation that occurred at the start of the year won’t spur the Fed. “This is not yet an increase in the all-important core rate that motivates the Fed to make decisions,” said Kuehl. According to him, the price of oil may be heading down soon and gas prices have already eased a little. More important, the inflation threat is not yet manifesting in a way that will shift consumer behavior permanently.
2. Much of the recent decline has been related to the Japanese earthquake. “The flow of parts and supplies for the world was interrupted and many manufacturers felt the pinch,” he said. “The Japanese are already starting to recovery, most of the parts will be flowing soon, and by the end of the years there will be a return to some semblance of normal.”
3. Some of the conditions that led to the recession are fading. “Observers are a little baffled that banks and corporations have more money on hand than they have had in years, but that cash is not going anywhere,” Kuehl says. “The banks are sitting on it in part to contend with the wave of rule changes that stemmed from the Dodd-Frank legislation, and partly because they have returned to their old-school ways. Slowly but surely, the new system is getting in place, and banks are interested again in expanding their business through loans. Credit is still far from loose, but it isn’t as tight as it has been.
“The business community is holding on to cash more aggressively as well, uncertain about what they can count on from the banks and partly because they are just more cautious. The need to spend that money is not pressing as yet, but if the competition starts to move or there appears to be more demand, they will start to less loose that cash, and the economy will be stimulated again,” Kuehl reasoned.
And what about the industrial sector, which has been pulling the economy along on the strength of expanded exports and the need to rebuild inventory?
“It is likely the export demand will return, although in fact it has not declined all that much in the past few months,” Kuehl says. “The big drop has been in inventory build, and until the consumer gets more aggressive there will not be a drawdown sufficient to provide much impetus for the manufacturer.”
Maybe he’s just whistling in the dark, but it sounds like music to these ears. You can read more of Dr. Kuehl’s analysis at www.fmannet.org.
MRC Acquires Aussie Distributor
Last month McJunkin Red Man Corp. completed the acquisition of Stainless Pipe and Fittings Australia Pty Ltd (SPF). SPF will operate as MRC SPF. SPF, founded in 1996 and headquartered in Perth, Western Australia, is said to be the largest distributor of stainless steel piping products in the southern hemisphere.Andrew Lane, MRC’s chairman, president and chief executive officer commented, “This acquisition furthers our vision to be the world’s premier PVF distribution company to the energy and industrial markets. SPF’s PFF capabilities would allow MRC to expand on our valve platform to have a complete global PVF supply capability.”
Whopping Gains in May
PVF distributors belonging to the American Supply Association reported a dramatic 18.7% gain in May per-day revenues compared to May 2010. Those sales represented a 26.3% increase over the dark days of that month in 2009, and lagged only 3.9% lower than in 2008 before the foul matter hit the fan. Overall, ASA reported plumbing and PVF sales as up 6.1% year-to-date and 5.9% on a rolling 12-month basis.- Jim Olsztynski
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