Economic outlooks are far from bright and shiny

Buyers believe economy is skirting recession; others are more pessimistic

By Tom Stundza -- Purchasing, 5/12/2008 7:36:00 AM

Even with a temporary boost from the economic stimulus package, the growth outlook for the second half of this year has deteriorated, according to the Blue Chip Economic Indicators panel of economic forecasters. They believe the weakest annual consumer spending since 1991 will lead to this darker outlook. Buyers, meanwhile, suggest the economy will skirt a recession as the latest Purchasingdata.com survey resulted in an index of 53.2 in an indicator where 50.0 is needed to show any growth. And that’s why some economists argue that the country’s economy will be able to avoid a full-blown downturn although some admit that a so-called “growth recession” is probable—a period in which the economy does not expand fast enough to prevent unemployment from rising.

Meanwhile, a senior Toyota executive says that plans for a new auto assembly plant in Mississippi are being delayed by worries about slumping American auto sales and a broader U.S. economic slowdown.An Associated Press report says that many analysts believe the country has fallen into another recession, although others project that growth will be revised up from the barely discernible 0.6% rate reported last week to a slightly more respectable 1.1% rate for the first three months of this year when trade data is reevaluated. That’s because imports are down while exports are up. However, according to the Blue Chip consensus, overall economic growth for the year will be blunted by a severe drop in consumer spending—and the fact that total industrial production will grow only 0.7% this year, the worst performance since 2002. Mark Zandi, chief economist at Moody's Economy.com, also still believes the current slowdown should be ruled a recession because growth will dip into negative territory in the current quarter. “Some 250,000 jobs have been lost since the beginning of the year and unemployment is now above 5%—clear evidence that the economy is in recession,” he writes to clients.

Buyers say the slowdown is impacting spending plans. The latest Purchasingdata.com poll of buyers found two-thirds (66%) reporting that business at their companies has been flat to down lately so that only 39% were planning to increase purchasing in the May-July period. At the same time, 97% of the buyers were being plagued by rising prices for energy and commodities. Energy costs increased between April and May for 90% of the buyers polled while related transportation costs rose by 91%. Metals costs also increased with inflation impacting 90% of the steel buyers, 76% of the aluminum buyers, 84% of the copper and brass buyers and 83% of the fabricated metals buyers. Other buying groups reported big one-month price jumps for chemicals, 62%; resins, 69% and molded plastics, 62%