Signals mixed; future uncertain

Staff -- Purchasing, 11/3/2005

The oil shock from the Katrina and Rita hurricanes is blowing itself out, but has set back the U.S. economy in the third quarter, says the International Energy Agency. In its October monthly report, the agency estimates U.S. economic growth "may have been hit" by a full percentage point in the third quarter—but "is showing signs of recovery." But, home-market indicators of metalworking economic health are mixed—and various economic think tanks agree fourth quarter activity will be slower.

Government data on new orders for manufactured durable goods—cars, trucks, appliances and anything else designed to last three years or more—is dated, reflecting pre-storm activity in early August. Also, it appears that post-hurricanes' metals demand is erratic—up in steel and specialty alloys; down in aluminum, copper and stainless steel.

Still, Institute of Supply Management's business conditions index of 59.4 in September rose from 53.6 in August (on a gauge where 50 is the growth/no growth barrier) because manufacturing activity levels were slightly stronger than expected after two hurricanes. Reason: Robust domestic and international demand.

PURCHASING magazine's more-narrow composite business index for October of 63.4 was slightly lower than 64 in September. Upshot: Both purchasing-based indexes suggest improved business confidence ahead.

Key point: Manufacturing overall was less affected by the hurricanes than originally expected, economists now say, because there isn't as much industry along the Gulf Coast when compared to other regions and because most manufacturing companies in the region survived the disaster. Also, although drilling rigs and oil refinery complexes were damaged, companies are working on repairs. Still, metalforming companies do anticipate a downturn in business conditions this quarter, according to the September survey of 177 members of the Precision Metalforming Association.