THE YEAR AHEAD: LOOKING GOOD

Guest columnist Chris Kuehl of FMA explains how the U.S. economy can grow in 2012 if four key issues are addressed clearly, logically, and in a coordinated manner.

As we enter the New Year, the fabrication and metalworking industries in the United States are ignoring the financial funk that is attempting to stifle the rest of our nation’s economy. Over the past six months I have toured numerous job shops, contract manufacturers, steel service centers, parts distributors and machine tool OEMs across the country. I’ve spoken with executives, engineers, shop technicians, production managers and sales people at these sites and found that, even though they compete in widely different industries, they all share one thing in common: their business is booming . . . not just “good” . . . orders are so strong that most of these plants cannot ship stuff out the door quick enough.

I have been to three plant expansions in the past ten weeks and each one complained they cannot find skilled labor to hire for help. Business is great everywhere and looks strong for the coming year. That’s not all. Our annual State of the Industry coverage, which starts on page 30 (of the January print issue), shares deep insights from fabrication and metalworking executives that confirm all of this even further.

Yet over the same period of time the evening news has reported doom-and-gloom every night about our national economy: the housing market struggles, new heights of unemployment, Wall Street financial problems, the economic crash of another European nation, China, China, China . . . but not one good report about U.S. manufacturing. Not one. This is a total disconnect from the world I’m living in, where manufacturing appears to be carrying the load for our nation’s economy – a booming business in the midst of a broader economic funk.

Dr. Chris Kuehl, an economic analyst for the Fabricators & Manufacturers Association, International (FMA; Rockford, IL) believes in his report that follows that the U.S. can get out of this funk by addressing four key issues that impact the economy “in a coherent manner” – (1) employment, (2) consumer behavior, (3) global economic strain, and (4) the role of politicians:

THE U.S. ECONOMY CAN GROW
I estimate the country can expect growth of around 3 percent in 2012. If not, the U.S. will wallow in the 1-1.5 percent growth territory – with all that implies. These four areas are the ones that most people pay close attention to, and they are in great flux. Permanent changes in these four areas will have a significant long-term impact that extends beyond 2012.

EMPLOYMENT
Joblessness is really what most people care about when it comes to the economy. The average person couldn’t give a hoot about the GDP or trade deficits or the Fed’s interest rate unless it affects jobs. The U.S. economy is now sitting with some 16 million to 25 million people out of work or underemployed. Will this improve in 2012?

It will, but only marginally. The rate of joblessness will likely be between 8 percent and 9.2 percent for the year. The bigger question is whether those 25 million people will become essentially a permanent underclass. Three aspects make this challenging: many job seekers lack the skills needed to return to the workforce; those who have the skills find it difficult to get to where the work is; and employers that are expanding would rather invest in machines than people.

Unfortunately, the education system has largely failed to train people for the available jobs. Also, people who were encouraged to ‘specialize’ in their jobs now find their specific talents are no longer needed. In addition, people who do find jobs in other cities can’t relocate because they can’t sell their home. The regulatory environment hurts hiring, and so does the uncertainty over health care reforms.

This list can go on, but the point is that it will take far more than economic recovery to boost hiring.

CONSUMER BEHAVIOR
Suddenly U.S. residents are saving more and deleveraging. Credit card use is down somewhat and so are the bigger loans. It is true that some of this has been involuntary. The majority of the newfound frugality, however, is voluntary, as consumers are now saving at a rate of around 3.2 percent, a sharp drop from this past summer’s 6 percent – but still respectable for a nation that was engaged in dissaving as recently as 2006.