It will be a quick war and you will benefit
Molders surveying the latest crop of economic data and projections have a right to be confused. Key indicators point up one day and down a week later. Some forecasters anticipate a new recession while others confidently project strong growth later this year.
What it comes down to is simple: The North American economy was gripped in paralyzing indecision. Would there be war with Iraq? What would happen to oil prices? As Wall Street showed on the day our president addressed the nation, the start of war removed uncertainty. There will be up and down movements and oil prices may spike more. Our bet is that once the Iraq issue is resolved, solid and rapid growth will return, including the manufacturing segment.
The War âTaxâ
The U.S. consumer has been paying a war âtaxâ of sorts for the past seven months and this is finally starting to show up in dismal data on consumer spending. February sales in department stores, car showrooms, and all spending segments except housing were down. The steady increase in oil pricesâat the time of this report hovering around $40/barrelâhas reduced consumer spending power for the last 12 months by $106 billion dollars, according to data from the Federal Reserve. And derivative pricesâsuch as gas and heating oilâwill stay high until the Iraq issue is resolved.
The reduction in consumer spending is hitting molders hard, particularly those who are making products such as small appliance parts, packaging items, toys and sporting goods, car parts, and consumer electronics components. Again, this will not reverse itself until the Iraq issue is resolved.
Here is a summary of key economic data that back up our statements above:
Increase in Electronics
Although much of the economic news is troubling, North American molders of components for computers, copiers, other office equipment, and consumer electronics have reported order increases since the start of the year. This suggests that the low rate of output growth may shift up, even though imports continue to expand.
Market research firm Gartner Dataquest projected during the winter that worldwide personal computer shipments will rise 4.8 percent in Q1. Even better growth is expected later this year: An increase in global PC shipments is expected by the end of 2003, rising to 138.7 million units, a 7.9 percent jump from 2002.
The housing market, at least for now, remains one solid bright spot. Some temporary declines in new construction as well as the purchase of existing homes is expected due to war fears, but for most of 2003 the housing market is expected to hold up very well.
This is great news for molders of furniture components, parts for large appliances, electrical items, and other items used in construction. Since most housing components are sourced locally, this segment of the molding market has not yet been affected by imports, enabling molders of plumbing components to continue solid output growth.
In January construction of new homes and apartments rose to the highest level in 16 years. The Commerce Dept. reported that work began on 1.850 million units at a seasonally adjusted annual rate in January, up .2 percent from 1.847 million units in December. In February, construction spending hit an all-time high.
Low Dollar, High Deficit
Adding to the economic worries is a rapidly expanding trade deficit. For 2002 the U.S. recorded a $435.2 billion trade deficit, the largest imbalance in history. This was up 21.5 percent from 2001, the Commerce Dept. reported.
Exports have not risen much as most global economies are showing slow or no growth. Economists had predicted an increase in exports as U.S. goods became more affordable with the generally lower value of the dollar.
By country, the U.S. ran up the largest trade gap with China, a deficit of $103.1 billion, marking the third straight year that the U.S. has recorded its largest trade deficit with that nation.
Agostino von Hassell of The Repton Group, New York, NY prepares this index. Contact him at [email protected].