September 13, 2007 -- While questions remain about the impact of housing problems on the overall economy and forecasters debate the prospects of a recession, the general conclusion at the Metals Service Center Institute's Economic Summit Forecast conference was that metals and industrial demand are likely to remain strong. Bank economists and other analysts at the conference in Schaumburg, Ill., attended by about 500 metals industry executives and some of their customers, agreed that they had recently geared back their gross domestic product (GDP) growth expectations for this year to the 2- to 3-percent range. But they said global demand for metals and industrial products is likely to remain strong in coming months, with increases seen in such segments as commercial aerospace, non-residential construction, energy and machine tools.
Uncertain or declining outlooks were seen for such segments as trucks, construction equipment, automobiles, rail cars, appliances, housing, material handling, defense and packaging. "Recent financial turmoil is certainly a reason to be downbeat about the economic forecast," said Richard E. Kaglic, senior economist for fluid power manufacturer Eaton Corp., Cleveland. But he also described the U.S. economy as "fundamentally solid" and said commodity prices are expected to remain high in 2008. "There are both demand-side and supply-side reasons for that," he said. "One of the big reasons is China."
The most reasons for a possible recession were offered by Paul Kasriel, senior vice president and chief economist at Northern Trust Bank in Chicago, who is known for his less-optimistic economic views. Kasriel said that recent declines in leading economic indicators, along with housing and consumer spending downturns, were among factors that are contributing to an economic slowdown. "We see a national decline in house prices this year," he said. "It will be the first year that we've seen a national decline since the Great Depression." With housing playing a disproportionately large role in the latest expansion, the negative impact of a downturn on the remainder of the economy is likely to be significant.
Downside risks for the economy could be compounded if the Federal Reserve does not cut its monetary rates soon, Kasriel said, but he and other analysts and economists at the conference said they expect as many as three rate cuts before the end of the year.
Eli Lustgarten, senior vice president and senior analyst at Longbow Research LLC, Independence, Ohio, said his company believes the economy is now more than halfway through the current midcycle correction and that commercial funding availability would remain key to keeping the economy going. "Our surveys continue to show that pricing is very strong," he said, noting that all industries are reporting similar situations and that commodity prices are continuing to be passed through by customers.
Source: American Metal Market
