Yesterday, I had two different conversations with people regarding economic news that will ultimately impact our business and has some indicators of what's to come for the econmy. One of the things that's been interesting in our field is that we work for businesses we refer to as "leading indicator" types of industry. Whatever is happening with them at the moment is about eighteen months to two years ahead of the nation's economy. It has been a weird phenomenon to observe, but the cycles seem to hold true and have for many years.
At the end of the Clinton administration, the economy had improved and even though there was bad news in some sectors, on the whole, things weren't horrible for the country. But we were in a slump -- it was difficult to scrape up work to bid. Any time we stay in a slump consistently, the rest of the country's going to follow. And sure enough, it did.
Weirdly, last year around March, things started picking up. We had more work to bid and by the end of the summer, we were able to raise our prices and still get plenty of work. By the end of the year, we still had plenty of work to bid -- more, in fact, than we usually have. This month has seen a leap in things to bid. Steel prices are shooting up, which means there are a lot more dollars being spent on metal. When steel prices go up, the economy usually follows, for a while. Our clients have more money to spend, industry tends to be spending more, which can spread to other industries, etc. If the nation's economy follows the trend from previous cycles we've had, things are going to conintue on the upswing (probably just in time for Bush to take credit for it and get re-elected.)
However... there's an ominous black cloud...
hanging over those rising steel prices. The rising steel prices are not due to the fact that more industries are expanding here -- building new facilities here (which creates more jobs and products here, which makes for a long-term economic upswing.) Know where all that steel is going? China. China and Taiwan are building large plants... which means that a big number of industries are going to be re-locating to those countries when the new facilities are up and running. It used to be that the industries which moved overseas were low-tech (textiles) or service (tech service) because labor was cheap over there and there wasn't a need for real technology to produce the required goods / services. But with the increase in technological inventions and globalization of access to that sort of technology, industries which wouldn't have moved overseas can now put their technologies over there cheaper and easier than staying here. And over there, they don't have to deal with labor unions, DEQ, the EPA, or a host of federally mandated safety guidelines. They can pollute the world, have cheap labor, make the products much less expensively and sell them back cheaply to the US (beating out any US firm)... because NAFTA got passed by the Republican party-controlled senate of the Clinton administration.
I've talked with several top level industry execs here who are sweating bullets, because they know that with all this steel production being purchased by China, the US stands a pretty good chance of shipping entire industries overseas in the next four or five years. It may take two to three years to build some of those plants over there, and maybe another two years to have products from them to start selling... and then the economy is going to take a beating.
So Carl and I are watching our leading indicator businesses. We figure we've got about two years right now of decent business / income before we start seeing tale-tell signs of slippage. We'll probably see it prior to it hitting the nation-at-large (unless there's another terrorist event). When we do, we're going to assess the reasons, and if it looks like it's a result of those plants going on-line, then we're going to downsize; sell this particular house to get what we can out of it and move to a much smaller place with a lower note. Right now, in this location, we're building decent equity in this house, but it's now bigger than what we need, since Luke's away at college and Jake will soon be following. Even if they're home for a weekend, we just don't need this amount of space. And, as long as we sell on the upswing, we'd make enough to put down about half of another house in a less-populated area.
I remember sitting in an economics class at LSU, being so incredibly bored, I was thinking the "bored" song (to the Meow meow mix commercial jingle: "Bored bored bored bored, bored bored etc.) and didn't realize I'd apparently started singing it out loud instead of thinking it. My prof stopped (really good-looking guy, too, damnit), and asked me if I'd like to come up there and lecture, and I thought, "Kill me now, because none of this will ever be relevant in my life." I thought the same thing about accounting. Man. Who knew? I really wish I'd paid attention.
Posted by toni at February 20, 2004 01:51 PM