Sidney Hill, Jr.: Let’s fix our economic state of mind

These are tough times to be in manufacturing. All of the factors contributing to the current global recession have fallen right on top of this sector. The tightening of credit and consumers' fear of losing jobs has brought automobile production to a screeching halt. Manufacturers of other durable goods, such as household appliances, are booking fewer orders these days.

By Sidney Hill, Jr., Executive Editor March 1, 2009

These are tough times to be in manufacturing. All of the factors contributing to the current global recession have fallen right on top of this sector.

The tightening of credit and consumers’ fear of losing jobs has brought automobile production to a screeching halt. Manufacturers of other durable goods, such as household appliances, are booking fewer orders these days. Steel producers and other companies that supply materials for manufactured goods are suffering as well.

While these things are common knowledge, it still was startling to see some of the numbers related to the economy that have hit my desk over the past few weeks. Among them:

  • A report about a CFO Magazine survey in which 81 percent of U.S.-based respondents—and 85-percent of respondents from Europe and Asia—were pessimistic about how the economy would perform in 2009; and

  • A durable goods report from PREVEL Consulting noting that the auto industry’s current capacity utilization rate, at 25 percent, marks a historic low.

    • “We’ve never seen anything like this,” the PREVEL report stated.

      I agree with that statement, but I also have decided that I’ve seen enough.

      While I can’t do anything about the state of the economy, I can do something about my state of mind. So instead of continuing to pore over gloomy statistics and dire prognostications, I decided to start looking for good economic news.

      I uncovered the first nugget of good news in that same PREVEL report, which says the housing industry has sold off nearly its entire excess inventory. That’s good news because it means housing prices should start to stabilize, and with mortgage rates still at historic lows, buyers may start trickling into the market. Even better news, says PREVEL, these new buyers will have to meet tighter standards to acquire loans—meaning they are less likely to default and create a new crisis. If this scenario holds true, it will eventually lead to new demand for household goods, and improved business conditions for durable goods manufacturers.

      Other bits of good news were found at Purchasing.com , which like Manufacturing Business Technology, is part of the Reed Business Information family.

      Staying with the housing theme, Purchasing cited a U.S. Commerce Department report that said privately owned housing starts were 22 percent higher in February than they had been in January. Single-family home starts were 1.1 percent above January, the report stated, while privately owned home completions were 2.3 percent higher.

      Additionally, the report said, building permits were up 3 percent.

      These things may or may not have been related to a statement made by Ian Christmas, director general of the World Steel Association, in early March. Speaking at the Reuters Global Mining and Steel Summit in London, Christmas said global steel inventories are “very low” and he expects demand to rise before year’s end.

      I don’t know if his timetable is correct, but I do know Christmas is correct in saying the downturn will end. The only question is how we react until then. At this point, as Christmas told attendees at the mining and steel summit, “Everybody’s overdoing the pessimism.”