Bush and buyers differ on economy

Staff -- Purchasing, 1/13/2005

In its official economic forecast, the White House says the U.S. will enjoy solid economic growth and low inflation in 2005. But neither a definitive Bush election win nor a late-December decline in the price of oil has done much to boost the spirits of metalworking companies. Metalworking activity closed 2004 very close to the lows last recorded in the summer of 2003. The reason? High energy and raw material commodity costs have taken some air out of the industrial balloon's ascent from recession

Buyer surveys show some confidence in the durability of the U.S. expansion overall—but what they question is the rate of growth. In December, just 34% of all buyers surveyed saw business activity rising; among metals buyers, improved business was reported by only 37% for the second month in a row. These are the most pessimistic survey results in 14 months. So, with just 21% of the metals buyers planning to boost purchasing into early 2005, Purchasingdata.com's metals forward demand index slipped to as little less than 42 in an index where 50 and above indicates growth. Some 80% of the buyers expect to buy the same amount or more metals in the next 90 days than they did in the past three months—but one-third of the buyers still plan to reduce their metals stockpiles.

Still the White House is sticking to its guns. It forecasts gross domestic product growth of 3.5% in 2005, a slightly lower growth than the 4.4% pace in 2004. But critically, inflation, which jumped up 3.4% because of record oil prices last year, is seen slowing to 2% in 2005. "Given the powerful forces at work since early 2000, the strength of our economy is remarkable," notes Gregory Mankiw, chairman of the Council for Economic Advisers.