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If trickle-down economics is a tired old model plagued by frequent clogs in the plumbing, then ongoing efforts to promote domestic growth through debt-based stimulus packages has yet to even build the pipes.
Some 14 months have passed since I reported that industrial behemoths like Caterpillar (NYSE: CAT ) and U.S. Steel (NYSE: X ) noted only scant allocation to infrastructure and related industrial catalysts within a $787 billion stimulus package that indeed helped to ease some of the panic on Wall Street. When I spoke to Nucor (NYSE: NUE ) CEO Dan DiMicco last November, he called the measure "a welfare package that did nothing to create jobs". As recently as December 2009, Commercial Metals (NYSE: CMC ) observed "no discernable stimulus effect," but offered hope that some impact "may finally be evidenced by spring."
Now that spring is in the air, I suspect you will hear plenty of anecdotal evidence to the effect that stimulus spending is finally bearing fruit and paving the way for a sustainable U.S. recovery. With 730 allegations of waste or fraud surfacing thus far, combined with the recent $75 billion upward revision of the cost of the stimulus, the pressure is on Washington to show some tangible results.
Let's forget for a moment that China has just completely schooled us on how effective a stimulus package can be when it adequately targets the productive sectors of an economy rather than perpetuating a broken, debt-dependent, consumption-driven economic structure. While road crews have been out in force across this nation laying down enough asphalt to pave the moon, China quietly set about purchasing as many strategic natural resources as it could get its hands on while keeping its steel mills running full tilt. By October 2009, South Korea's POSCO (NYSE: PKX ) was back to 92% capacity utilization while our domestic mills scraped their way back to 55%.
Meanwhile, even as Commercial Metals makes difficult choices like the recently announced closure of its deck and joist business, it appears that some iota of a stimulative effect is finally poised to be felt by the steelmakers. For its part, Nucor was careful to differentiate between encouraging strength in less construction-sensitive product segments like steel sheet and plate, while noting persistent weakness in "long" products like bars and rods.
Adding another layer of insight, Commercial Metals this week further subdivided the commercial construction-driven segment between the private sector and public sector components. Noting persistent weakness from the private sector, the company expects: "the public sector of the nonresidential markets to improve further in the second half of calendar 2010 as projects funded by stimulus dollars are awarded." I don't know if that's enough to fuel recent speculation that Commercial Metals may be targeted for acquisition by the likes of Gerdau Ameristeel (NYSE: GNA ) , but it's a start.
While reporting a sizeable net loss of $173.3 million for its fiscal second quarter that included a $38.1 million writedown for the deck and joist business, Commercial Metals' list of persistent woes impacting its fabrication unit sums up the economic context within which these stimulative impacts are anxiously awaited. This industrial bellwether still observes: "no effective stimulus for construction, lack of customer liquidity, high unemployment and building vacancy rates, and state budget woes." I remind Fools to avoid the convenient presumption that the long-awaited stimulative impacts that may be forthcoming constitute some kind of assurance of a sustainable economic recovery.