Reality Check: The Economy—How Much Longer?

The economy continues to weigh heavily on the minds of industrial finishers and suppliers alike. By most accounts, the US manufacturing sector had been in decline well in advance of the broad economic recession that started two years ago, and many of us who’ve been told that positive change is just around the corner stopped believing it about a year or so ago. Certainly, the most recent numbers released by the Federal Reserve don’t do much to suggest that we should believe otherwise:

In April, the Fed reported that there was a 0.5% decrease in industrial production (for the month of March), the biggest decline since December 2002’s 0.8% decline. Wall Street analysts had previously estimated that the slide would be closer to 0.2%. The Fed had previously announced a 0.1% increase for February, but that number was revised to a 0.1% decrease later in the month.
Factories, mines and utilities also ran at a slower pace in March, using only 74.8% of their total capacity, the lowest reading since December 2001.

Still, not all the news is bad. Though consumer confidence remained low in March, many economists have speculated that a brief, successful war could have a positive impact on consumer confidence and the economy in general. With the “main fighting” in Iraq lasting just three weeks, we can probably expect at least a small increase in consumer confidence. Whether that increase turns out to be just a quick—and unsustainable—boost or something with lingering implications, remains to be seen.

Another positive sign lies in the fact that the overthrow of Saddam Hussein and the subsequent fall in oil prices should “remove a large risk to the health of the world economy,” according to the G7 finance ministers and representatives of the International Monetary Fund and World Bank, following a recent meeting in Washington, DC. According to the ministers, the global economy should improve over the next six months with the return of consumer and business confidence. One finance minister termed his outlook as “hopefully optimistic.”

On a far less scientific (but often-times more accurate) note, it’s worth mentioning that in virtually every plant visit, telephone call or e-mail communique I have with a plant owner or supplier, I like to ask the question, “how’s business?” These days, it seems like I’m hearing a lot more of “not too bad,” or “we’re hanging in there,” than I was a year ago, when the patented response seemed to be “don’t ask.” Job shops that offer a variety of products and services have managed to stay in the best shape, and there is definitely a sense of optimism—however marginal—that wasn’t present during these conversations 12-14 months ago.

So, what’s the answer to my question? How much longer until we see a noticeable improvement in the economy? Three months? Six months? Two years? I’m not even going to try to wager a guess, though I suspect the answer is closer to six months than two years. Then again, maybe it’s just around the corner.