I like to picture an economy as a house of interconnected rooms that are only visible, in sections, through windows from the outside.
Here in the United States, I see four kinds of windows into our present economic house:
- Windows into the rooms where a booming housing market once lived have been boarded up for a few years now, spray-painted like those hurricane-battered homes in New Orleans to indicate they are empty.
- Upstairs, where windows were blasted off their frames by the implosion of financial derivatives, the rooms are as if frozen in time. These financial weapons of mass destruction remain shut in amid the shadows of crafty balance sheets by the trillions.
- Other panes are coated in a film of murky uncertainty and confusion, permitting no light to reveal what's inside. Media punditry, political rhetoric, and misinterpreted data swirl about those rooms in a cacophony of errors.
- And then there are the steelmakers. With a reliability all their own, I believe that clear windows into the foundries of a nation's metalsmiths yield more direct insight into the underlying health of an economy than most other vantage points. I believe that sustainable recovery is impossible without the widespread participation of the industrial base, and so I continue to hold vigil outside their window.
Steelmakers have observed a rather sudden reversal of the unexpected strength felt through the first several months of this year. Steel prices fell suddenly in May, and just in the past week prices for hot-rolled coil steel products in the U.S. slipped nearly 4%.
Peering through AK Steel's window, we find the company purposefully dialing back about 5% of its capacity in response to a recent slowdown in order intake rates. When considered in the context of emerging caution from all the domestic steelmakers, we get a snapshot of a steel industry that's operating more capacity than real demand can support.
After turning in six consecutive quarterly losses, and after observing a corroborating fall-off in order rates, U.S. Steel
If you want a rosy, upbeat view of the economy, I believe they have windows for that. From where I stand, however, I am sorry to say I see the fires of American industry growing dim once again.